Foreign Exchange Daily Market Update 15/06/11

Price action on the British Pound was choppy yesterday as UK consumer inflation data caused a mixed reaction among foreign exchange traders. Inflation in May came in line with expectations; holding at 4.5%. This result was unchanged from April’s reading, which was the fastest pace of price growth since October 2008. Core inflation eased from 3.7% to 3.3% over the same period, missing expectations to slow to 3.5%. The drop in core prices leaves some traders speculating that the Bank of England will maintain its dovish policy. As rate hike expectations decreased, the GBP/USD exchange rate pulled back from its high of 1.6441 to 1.6377. The less influential retail price index also saw annual price growth remain steady at 5.2%.

Employment data headlined the UK docket this morning, with forecasts calling for the number of people seeking jobless benefits to rise in May by 6,500 individuals. However market participants were disappointed when official figures revealed that the number of jobless claims rose by 19,600 and the previous month’s increase of 12,400 claims was revised up to 16,900. The news is a hard knock to the UK jobs market and comes amid Government spending cuts to the NHS, Police and Armed Forces. The surprise increase in claims however did not affect the claimant count rate, which remained at 4.6% or the ILO Unemployment rate which held at 7.7%. The Pound fell against the Euro to 1.1350 and to 1.6312 versus the US Dollar, making the currency exchange market less viable for buying Dollars and buying Euros.

In the Euro-area, finance chiefs remained divided yesterday on how to involve private investors into the Greek bailout program, while at the same time keeping the European Central Bank happy. Finance ministers were under increased pressure as the International Monetary Fund (IMF) has recently threatened to withhold their share of the original bailout package if a compromise cannot be reached, and further to this Standard and Poor's lowered the nation's credit rating to CCC. Ministers closed the meeting without coming up with a solution; however, the group has imposed a dead-line of 20th June for an agreement to be reached. Luxembourg’s Finance Minister Luc Frieden remained optimistic that a solution would be reached before the deadline saying, “it’s not exceptional at an informal meeting not to have a decision. But the goal is clearly to have a solution by the end of the month.” The lack of an immediate solution saw the Euro weaken and fall back from its earlier highs; the EUR/USD exchange rate heading back towards 1.4440 and GBP/EUR retracing to levels above 1.1330.

Meaningful economic data will be thin on the ground for the Euro-zone today, meaning Euro traders will have to focus on the Euro-zone Industrial Production figures for price direction. Economists forecast that production will have cooled in April from an annualised rate of 5.6% down to 4.8%. This predicted slowdown in production will most likely weigh on the Euro which is already struggling against the as yet unresolved sovereign debt issue.

Yesterday's US Advance Retail Sales for May showed that consumer spending contracted by 0.3% amid speculation that sales will plummet by 0.5%. The decline in sales was to first to be recorded in 11 months and followed a downwardly revised increase of 0.3% in April. While the contraction in sales was weaker than expected the news still casts a poor light on the US economy. At the same time May’s Producer Price Index (PPI) increased expectations that the Federal Open Market Committee (FOMC) will raise interest rates later this year, when prices grew by 7.3% annually to beat expectations for price growth to remain stable at 6.8%. With inflation on the rise the Federal Reserve will be expected to act with an interest rate hike and curb price growth before it gets out of hand, and it is with this expectation that the US Dollar enjoyed a brief rally against both the Euro and the Pound.

Off the economic docket, Fed Chairman Ben Bernanke urged the US Congress to raise the debt ceiling citing that failure to do so could lead to credit rating downgrades and damage the treasury market. The Fed Chairman said that even a brief period of delay on the Treasury’s debt obligations could, “cause severe disruptions in financial markets and the payment system.” Earlier in the month, Moody’s Investor Services warned that the US could have its AAA credit rating placed under review unless Congress took steps towards compromising on raising the $14.3 trillion debt ceiling. At present the issue is that Republicans refuse to raise the debt ceiling unless the Democrats agree to sever spending cuts, but Bernanke has warned that the debt ceiling is the “wrong tool” for lowering the nation’s budget deficit.

Looking ahead the Consumer Price Index (CPI) is expected to have risen in May by 3.4% up from 3.2% in the previous month, while the core index is expected to see a more modest increase from 1.3% to 1.4%. With yesterday's PPI showing a greater than forecasted increase in price growth its highly likely that the CPI reading will exceed the consensus as higher production costs are often passed onto the consumer. As mentioned earlier higher inflation will most likely stoke expectations the FOMC will raise interest rates to keep inflation in check and thus the foreign exchange market could see a rally on the Dollar. Later into the US session the Dollar could see further potential gains when June's Empire Manufacturing index and more importantly May's industrial production figures are announced. Both sets of data are predicted to show improvements in manufacturing and production from the previous month's readings, with the Empire figure rising from 11.88 to 12.00 and industrial production is set to rise by 2% following a month of stagnant growth.

Foreign Exchange Daily Market Update 13/06/11

The British Pound had a tough time against the US Dollar over the course of last week. The currency slipped against the Dollar early in the week when the International Monetary Fund (IMF) lowered its growth forecasts growth forecasts for the UK in 2011 from 1.7% to 1.5%. However, the Fund did support the UK government's austerity measures; saying that it remains ‘’appropriate’’ for the Bank of England (BoE) to uphold the "current scale of monetary stimulus". The comment lowered rate hike expectations amongst foreign exchange traders, with the drop in expectation reinforced on Thursday when the BoE held the benchmark interest rate at the historic low of 0.50% and asset purchases at £200 billion. A negative outlook was reiterated for the Pound on Friday, when it was reported that both industrial and manufacturing production was down in April. Industrial production contracted by 1.7%, despite calls for output to remain flat, while manufacturing, which was expected to see a mere 0.1% decline fell by a staggering 1.5%. The data echoes the weaker Purchasing Manager's Index (PMI) readings seen earlier this month and paints a poor outlook for the UK economy. This left the GBP/USD exchange rate to close the week at a low of 1.6220.

This week; Consumer Price Index (CPI) figures for May are due for release on Tuesday, but with the BoE expected to maintain its current monetary policy for most of the year, a better than expected reading of 4.5% may not stoke an appreciation in the Pound. However there may be some optimists in the currency exchange market who may feel differently, so a move to the upside is still possible. Employment figures follow on Wednesday with the number of people seeking jobless benefits claims expected to rise by 6,500 in May, with the claimant count rate expected to hold at 4.60%. The ILO unemployment rate is expected to hold at 7.7%. Should the figures come in as expected, it doesn’t present a hugely encouraging result, but any surprises could spark a movement in the Pound. A slowdown in retail sales from April to May could see the Pound trading lower on Thursday, where it may remain lower against the other majors, as Friday's docket remains bare and therefore unlikely to support the Pound.

A mix of sovereign debt fears and poor economic data hurt the Euro's standing against the other major currencies last week. The Euro had started well with rate hike expectations rising on Monday morning when April's Producer Price Index (PPI) grew by 0.9% month-on-month ahead of a 0.8% forecast. The rally was quickly reversed though when German Finance Minister Wolfgang Schäuble expressed that it was not absolutely certain that Greece would receive further bailout funding. Tuesday's Euro-zone retail sales figures and Germany's factory orders both came in above the consensus reading for April, supporting the single currency until Wednesday; which proved a dire day in terms of sentiment for the Euro-zone. A contraction in Germany's exports for April, coupled with weaker industrial production weighed on the Euro, with further negative sentiment coming in the form of a Reuters article saying that the EU, IMF and ECB would not provide further aid unless Greece could resolve under-financing in its adjustment programme.

The Euro continued to slide despite ECB President Jean-Claude Trichet using the key phrase "strong vigilance", in his post rate decision conference on Thursday, to signal a strong likelihood that rates would rise in July. The phrase was used by the central bank's head following the ECB's decision to hold rates at 1.25%, in line with expectations. This would typically lift the Euro against the other currencies, however Trichet went on to say that further tightening measures would follow a rate hike in July and that the central bank has lowered its growth forecasts for 2012. The news kept the Euro under pressure so that by Friday the GBP/EUR exchange rate breached the 1.13 barrier, making conditions better for buying Euros.

European data will be on the thin side this week, with the first item of note being Wednesday’s release of industrial production for the Euro-zone. The data may push the exchange rate lower as forecasts call for production to contract by 0.2% in April. Thursday's Euro-zone CPI readings could allow the Euro to regain any potential losses if inflation comes in above the forecast 2.7% annual growth rate, while an improvement in the accompanying employment rate could see further gains. However the Euro looks set to end the week on a bad note as April's Euro-zone trade balance is expected to see a trade deficit of 1.9 billion Euros.

In what was an extremely quiet week for the US in terms of economic data, the US Dollar performed well. The Greenback benefited from a drop in rate hike expectations for both the UK and the Euro-zone, while Europe was further hampered by trying to resolve Greece's debt issues. A speech in Atlanta by Fed Chairman Ben Bernanke and Wednesday's Fed Beige Book report were the most significant events to take place on the US calendar. On Tuesday the Fed Chairman put fears over another round of quantitative easing to rest when he said he would maintain the current level of monetary stimulus until labour market conditions boost economic activity, but did see the need to expand the current stimulus package. Bernanke went onto say that the US economy was still growing, albeit at a slightly slower pace than previously, and his comments were backed up by the Fed's Beige Book stating that economic conditions "warrant exceptionally low levels for the federal funds rate for an extended period." Finally, on Friday, the Dollar ended the week on a high note when May's monthly budget statement reported a smaller than expected budget deficit, allowing the EUR/USD exchange rate to fall below 1.6350 as the Dollar rallied against the other majors.

This week’s US docket will start with Tuesday's PPI figures for May. Forecasts call for factory gate inflation to fall slightly from 2.8% to 2.6%, while the core index (without food and energy prices) is expected to remain at 2.1%; indicating that food and energy prices may be on the way down after being elevated for so long. Advance retail sales figures will accompany the PPI, but could push the Dollar lower as sales are set to contract in May.

Wednesday's CPI readings seem set to contradict the earlier PPI figure, as consumer inflation is set to rise from 3.2% to 3.4%, potentially bolstering the Dollar through rate hike expectations. Further to this June's Empire Manufacturing index and May's Industrial Production figure are expected to improve. Falling jobless claims and a rise in Housing starts could see the Dollar strengthen on Thursday, although the expected decline in Building Permits may cloud the picture. Lastly, Friday's University of Michigan confidence index could weaken the Dollar, as consumer sentiment is expected to fall in June, while May's Leading Indicators composite index is expected to improve by 0.3% and could potentially soften the Dollar's decline.

Foreign Exchange Daily Market update 07/06/11

With nothing on Monday's docket to guide price direction for the Pound, foreign exchange traders and market participants alike focused on the news that the International Monetary Fund (IMF) has backed Britain's austerity measures as put forward by Chancellor of the Exchequer George Osborne. The IMF said that "Strong fiscal consolidation is under way [in the UK] and remains essential to achieve a more sustainable budgetary position," and that the current economic weakness and above target inflation, which the IMF forecast to fall back to 2% over "reasonable time frame", are temporary. The Fund went onto say that it remains appropriate for the Bank of England to uphold the "current scale of monetary stimulus". This news supports forecasts that the BoE will maintain its current policy on Thursday when the Monetary Policy Committee (MPC) convenes to announce their rate decision. The IMF's support should have lifted the Pound but it seems the currency exchange market was more interested in the Fund's growth forecasts for 2011, which it lowered from 1.7% to 1.5%. This left the Pound to hit a low of 1.1185 against the Euro and 1.6340 against the Dollar.

Another quiet day for the UK will mean traders will have to hold their breath until Thursday's rate decision by the MPC and the accompanying trade balance data to get a sense of price direction for the Pound.

A better than expected Euro-zone Producer Price Index (PPI) reading for April lifted rate hike expectations, to see the Euro make some early morning gains yesterday as PPI rose by 0.9% over the expected 0.8%. Further to this the election of a new Portuguese government meant that Lisbon can implement the necessary budget cuts and austerity measures as specified by the EU and IMF, and thus ensure further monetary aid if need be.

However the Euro's gains against the US Dollar quickly evaporated when German Finance Minister Wolfgang Schäuble, expressed that it was not absolutely certain that Greece would receive further bailout funding. Given that the single-currency has recently gained support from the notion that Greece will receive funding from the IMF and the EU, the Euro could be in for a major retracement if this is not the case. The Euro's decline was further compounded by ECB Vice President Vitor Constancio who, while delivering a speech in Italy, said the economic outlook for the euro-region remains weak leaving the currency to trade at a low of 1.4550 against the US Dollar.

The forecast stagnation in April's annualized Euro-zone retail sales are unlikely to support the Euro this morning, as the outcome is set to reinforce a weakened outlook for the economy. However a better than expected reading will provide the Euro with the means to retrace some of yesterday's loses. Germany's factory orders for April, which are due for release an hour later, has more potential to lift the single-currency as forecasts call for orders to increase by 2.00% month-on-month after having contracted by 4.00% in March.

While still reeling from last Friday's disappointing Non-farm Payrolls figure, price action for the US currency was largely mixed with economists seeing scope for a third round of Quantitative Easing (QE3) by the Fed in a bid to support the economy. However the US Dollar did benefit from Europe's sovereign debt woes through save haven trading, but it appeared as though markets favoured both the Japanese Yen and Swiss Franc over the Dollar, as a haven, which was evident in the Dollar's decline against both currencies.

Looking ahead the US will see another reasonably quiet docket with Fed Chairman Ben Bernanke making a speech in Atlanta being the key event to watch this afternoon. Bernanke's speech will be closely watched by traders for indications as to whether another round of quantitative easing will go ahead, if so then the Dollar is likely to suffer as it is a clear indication that the Federal Reserve believes the US recovery cannot be sustained without support.

Foreign Exchange Daily Market Update 03/06/11

Thursday's trading session saw the Pound continue its decline against the other major currencies and enjoyed only a brief moment of relief when May's Construction Purchasing Manager's Index (PMI) came in above expectations. The construction PMI showed that activity within the UK's construction sector accelerated at a faster pace than was seen in the previous month as the index reading moved up from 53.3 to 54.0, beating expectations for a PMI of 53.5. The outcome allowed the GBP/USD exchange rate to briefly peak at 1.6417 before crashing back down to levels of 1.63. The Pound was also burdened by the Bank of England's (BoE) Paul Fisher who, in an interview with the Daily Mail, was reported to say that should the economy take another turn for the worse, that he would consider increasing the size of the central bank's asset purchases. With the BoE highlighting the ongoing weakness within the economy and rate hike expectations remaining subdued, the Pound will most likely face an uphill struggle for the remainder of the year.

The final in the PMI series, the services PMI, is due for release this morning and the general consensus is for a slight slowdown in activity for May. The index is set to slip from 54.3 to 54.2 and has the potential to push the Pound lower as the economic outlook worsens. However a better than expected reading could boost the Pound, but given the backlog of sour data, the Pound could struggle to maintain any such gains.

Despite Thursday's docket remaining bare of economic figures for the Euro-zone, the Euro managed to rally against both the US Dollar and the British Pound, with the exchange rate peaking at 1.4486 versus the Dollar and GBP/EUR falling to 1.1310. The currency made progress on the foreign exchange market following news that Greece has accepted to carry out another round of austerity measures, a move that brings the country closer to receiving another tranche of aid from the International Monetary Fund (IMF) and European Union. At the same time credit ratings agency Moody's Investors Service lowered Greece's credit rating to Caa1 from B1 and raised the nation's risk to default on its debt to 50%, but this news failed to impact the Euro's progress.

For Europe, the week will end with the final revisions to May's Services PMI for Germany, France and the Euro-zone as a whole, which are expected to remain unchanged from their preliminary readings. However as seen earlier in the week, the manufacturing PMI's for the same period were revised down from their preliminary readings, so it might be possible that the services sector has suffered a similar fate. If so then the Euro could retrace some of its gains from early in the week.

Following the announcement that non-farm productivity in the US rose at a greater than expected pace during the 1st quarter, the Dollar rallied against most of the other major currencies. According to the US Labor Department, productivity rose by 1.8% to beat expectations for a 1.7% increase. The currency received further support from its weekly jobless claims figures which showed a modest drop in first time claims for jobless benefits from 428,000 to 422,000. However the figure missed estimates for 420,000 claims to be filed. Continuing claims fell slightly from the previous week's figure of 3.712 million to 3.711 million claims, but failed to fall the consensus level of 3.675 million claims.

The Dollar's upward trend didn't last long on the currency exchange market however; this is most likely due to apprehension over the upcoming Non-farm Payrolls figure which headlines this afternoon's session. Forecasts call for the US economy to add a mere 165,000 jobs in May, the lowest increase in a four month period. A weaker than expected reading on such an influential piece of data could stoke a contraction in risk appetite, pushing the US Dollar and its other safe haven partners (The Swiss Franc and Japanese Yen) higher against the other majors, and the opposite could also be true with a better than expected reading increasing the likelihood of trader's buying up higher yielding currency pairs. Elsewhere on the docket the unemployment rate is expected to tick lower from 9.0% to 8.9% and the ISM non-manufacturing composite is expected to show that service based activity improved in May.

Foreign Exchange Daily Market Update 01/06/11

Tuesday saw the Pound lose ground against the Euro and the US Dollar as the economic docket for the UK remained devoid of figures for a second day. Looking ahead to today's figures, April's mortgage approvals are set to slip from 47,600 approvals in March to 47,000 while net lending secured on dwellings is expected to rise from £0.4 billion to £0.7 billion. May's Purchasing Manager's Index (PMI) for the manufacturing sector could weaken the Pound's standing. A lower reading than the expected 54.1 index figure will most likely drive the currency lower, whilst a better than expected outcome could lift the gloomy outlook and push the currency higher.

The Euro saw some support on Tuesday when talks of Greece receiving a second bailout reached the foreign exchange market. According to the Wall Street Journal, German Officials eased off the pressure on getting Greece to restructure its debt before securing additional funds. As part of the deal Greece will have to accept additional austerity measures to receive further funding from the International Monetary Fund (IMF) and the EU. Among other requirements Greece will have to extend its public sector pay freeze, make cuts in civil service benefits and limit the nation's capital expenditure. Since this is a significant hurdle to have jumped, in securing additional funds, the news pushed the Euro exchange rate to a high of 1.4414 against the US Dollar and to 1.1420 against the British Pound.

Today final revisions to the German and Euro-zone manufacturing PMI for May headline the European docket. The index reading for Germany is expected to remain unchanged at 58.2 and the Euro-zone's reading to hold at 54.8. Any surprise downward revisions could see the Euro lose some of the gains it made yesterday, whereas a better than expected reading will extend its advance.

Yesterday's price action was mixed with regards to the US Dollar. Despite economic figures disappointing market traders, the Dollar made gains against the British Pound with the currency pair hitting a low of 1.6423. Whilst against the Euro, the Dollar managed to regain some ground after the single currency rallied following the possibility of Greece receiving a second bailout. On the data front Consumer Confidence fell in May to 60.8, the lowest level to be seen in six months. The index fell from an upwardly revised 6.6 in April, missing estimates for sentiment to improve to 66.6. Further to this the Chicago Purchasing Manager Index fell further than expected, slipping from 67.6 to 56.6 to mark its lowest reading since November 2009.

Economic figures due out today look set to provide a weaker outlook for the US economy and as such could stoke a reversal in risk sentiment on the currency exchange market, which lead to an appreciation for the Dollar through safe haven trading. To start with the ADP Employment Change survey is expected to show that the number of employed fell from 179,000 to 178,000 in May. Later into the session May's ISM Manufacturing index is estimated to fall from 80.4 to 57.2, indicating that manufacturing activity is cooling but still showing signs of growth.

Foreign Exchange Daily Market Update 27/05/11

Whilst still enjoying the gains it made following Wednesday's Gross Domestic Product (GDP) figures, the Pound moved to a two week high against the US Dollar following a less than supportive round of US figures. The Pound was also supported by report from research firm GfK that consumer confidence had improved in the UK. According to the report consumer confidence rose by 10 points to a reading of -21 to mark the second largest increase since May 1993. Another turn of good news came this morning, when according to Nationwide Building Society, house prices rose 0.3% in May to beat estimates for a 0.1% increase. The remainder of the day will be devoid of UK figures leaving the Pound once again subject to wider macro-economical influences.

In a light day of economic figures, the Euro performed well against the US Dollar during the first half of the day. The Euro was bolstered by rumours that the Chinese government were interested in buying Portuguese bonds. If the rumours are true then this would provide the Euro-zone with some much needed funding as the International Monetary Fund (IMF) is unwilling to commit further funds to the region until refinancing guarantees for debt ridden nations, including both Portugal and Greece, are approved.

Germany's Consumer Price Index (CPI) for May headlines the European session today with forecasts calling for price growth to slow annually from 2.4% to 2.3%. Although this predicted outcome would mean that inflation remains elevated, it does take some of the pressure off the ECB to raise interest rates, which is widely expected to have a negative impact on the weaker European nations. Elsewhere on the docket there are a number of Euro-zone confidence indicators for May, the most influential of which being the economic confidence survey and this is expected to tick slightly lower from 106.2 to 105.7. Weaker sentiment toward the Euro-zone is likely to push the currency lower.

The US Dollar lost ground today as foreign exchange traders were disappointed by yesterday's revisions to first quarter GDP figures. Economists had been expecting that the US economic growth rate would be revised up from 1.8% to 2.2%, however the figure was left unrevised. The personal consumption component of the GDP total was revised down from 2.7% to 2.2%, missing estimates for the figure to rise to 2.8%. Similarly core consumption slipped below the consensus of 1.5% to 1.4%. This week's jobless claims figures provided a mixed outlook for the US labour market, as ongoing claims fell from 3.711 million to 3.69 million while initial jobless claims rose from 409,000 to 424,000. The overall picture is one of a very weak US economy which pushed the GBP/USD currency exchange rate to a high of 1.64, while against the Euro the exchange rate hit a high of 1.4203.

The US docket will end the week with more figures on personal spending. In April personal spending is expected to slow from March's growth rate of 0.6% to 0.5%, (although given that consumption was weaker in the GDP total this may well be revised down). The core reading of personal consumption (which excludes food and energy purchases), is however expected to pick up slightly from 0.1% to 0.2%. Unlike the GDP personal consumption component which only covers data gathered from January to March, today's monthly figure will provide a more timely and up-to-date picture of consumer spending. Elsewhere on the docket, pending home sales for April are set to contract by 1.0% following March's 5.1% increase. However given that new home sales figures released on Tuesday for the same period showed a bigger than expected increase, then its possible that the outcome may be announced higher, if so then the Dollar could pick up as the housing market improves, but losses on the currency could be seen if pending sales fall below expectations.