Foreign Exchange Daily Market Update 09/09/11

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The Pound made a sharp reversal in the foreign exchange market yesterday; finishing the day trading higher against the US Dollar; and having made impressive gains against the Euro. The GBP/EUR exchange rate rocketed up from the morning’s open at 1.1322 to trade at 1.1487 by the end of the day. There was also a small rise in the GBP/USD exchange rate, from 1.5921 at the mornings open to 1.6009 at the day’s close. The main economic event from the UK yesterday saw the Bank of England keep the base interest rate on hold as expected; and also made no change to the asset purchase target. The market will have to wait for the release of the meeting’s minutes to see the full extent of the reasoning behind the decision; and the all-important voting majorities from the Monetary Policy Committee.

This morning has seen the release of producer price figures from the UK; with the result being an increase in the core output level, from 3.4% to 3.6%, some positive news for the UK.

The Euro suffered in the currency exchange market yesterday; falling heavily against both the Pound and the US Dollar; after less than impressive German trade balance figures; and more worryingly, a quite dovish tone from ECB President Jean-Claude Trichet at the ECB’s latest policy meeting; with the President highlighting the downside risks to economic growth, with the market now expecting the central bank to make rate-cuts by the end of the year.

The Euro-zone’s sole important figure for today has already been released this morning, with August’s CPI (inflation) figures form Germany showing an increase in both the annual and monthly level of price-growth; from 2.3% to 2.4% and from -0.1% to 0.0% respectively. This could pose a problem for the Euro-zone as a whole; with the expectation of rate-cuts in Europe increasing, rising inflation will be a difficult situation for the central bank to control.

The US Dollar for the fourth day running gained against the Euro; the EUR/USD rate pulling back further from 1.4061 to 1.5935; the Dollar taking advantage of the worsening outlook in Europe, but the currency lost some of its previous gains against the Pound, with the GBP/USD exchange rate picking back up to above 1.60. The economic data released from the US yesterday saw the US trade balance reduce it’s negative trade deficit slightly; which is positive news for the overall economy; but it may only be a temporary drop, with the previous day’s beige book economic report suggesting that the auto-industry; which is a huge contributor to the US’s economy, has been affected by smaller supply of stock from Japan, which could have been a factor in overall falling import levels.

There are no scheduled economic events from the US today; so the currency will be open to shifts in sentiment and news from the world’s other major economies.

This Daily Market Update is brought to you by The Market Team @ KBRFX – Exchange Rates & Foreign Currency Transfer specialists.

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 10/06/11

Yesterday the Bank of England announced their decision to hold interest rates at the historic low of 0.50%, and maintain the stock of asset purchases at £200 billion. Initially the rate decision had little effect on the currency, but as the market digested the increasingly unlikely prospect of an imminent rate hike, the Pound gave way and traded lower, with the GBP/USD exchange rate slipping to 1.6399. Market participants will have to wait until the 22nd June for the release of the meeting's minutes, which will also show the voting results, as once again the central bank refrained from releasing a policy statement. The Pound had seen gains earlier in the day with April’s visible trade balance reporting a better than expected reduction in the trade deficit, which shrunk from £7.708 billion to £7.389.


This morning’s industrial and manufacturing figures for April weakened the Pound’s standing against the other majors with the currency falling to 1.6265 against the Dollar and 1.1241against the Euro. 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 readings seen earlier this month and paints a poor outlook for the UK economy. Also on the docket, Output Producer Prices came in as expected, with core inflation growing at 0.2% in May, down from 0.8% in the previous month. The slow down in price growth means that the Bank of England may retain their stance on monetary policy as the data supports their view that the current level of inflation is still a temporary factor that will die down eventually.

The Euro was down versus the US Dollar this Thursday despite the currency exchange market being given a signal by Jean-Claude Trichet that interest rates would increase in July. Following yesterday’s decision by the ECB to hold interest rates at 1.25%, ECB President Trichet used the term “strong vigilance” when referring to consumer prices, a key phrase that is usually followed by a rate hike at the next policy meeting. 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. Trichet's comments sent the GBP/EUR exchange rate through the roof to peak at 1.1301 before falling back and holding near 1.1280 and maintaining a suitable environment to buy Euros.

With the ECB's head having signalled that a rate hike is on the cards for July, market trader's will be watchful for any economic indicators to support this move by the central bank and today's docket provides one such indicator: Germany's Consumer Price Index (CPI). CPI figures do have the potential to push up rate hike expectations, but unfortunately for the Euro, Germany’s CPI remained unchanged. Elsewhere on the docket, French industrial and manufacturing production for April came in weaker than expected. Industrial production actually contracted by 0.3% (although this is an improvement on March’s 1.1% contraction) and manufacturing increased by 0.2% missing estimates for 0.3% rise.

Thursday was a mixed bag for the US Dollar. Just before the open of the North American session the Dollar rallied following a greater than expected contraction in April's trade balance deficit which fell from a downwardly revised $46.8 billion to $43.7 billion, when forecasts had called for the deficit to widen to $48.8 Billion. This saw the Dollar rally and pushed the EUR/USD exchange rate to a low of 1.4478 and GBP/USD to 1.6358. The Dollar's rally was however restricted as initial jobless claims unexpectedly rose to 427,000 from 426,000. While it is only a small increase, it does however echo the rather poor employment figures that were released last week.

The big figure out this afternoon from the US will be May’s monthly budget statement which is expected to show that the budget deficit narrowed from April’s figure of $135.9 billion to $131.0 billion. The forecast outcome has the potential to push the Dollar higher as the data suggest that the US government is a step closer to balancing its spending against its income. However a higher than expected budget deficit would set the Dollar back.

Foreign Exchange Daily Market Update 09/06/11

The news that Moody’s Investor Services could potentially downgrade the UK’s AAA credit rating pushed the Pound lower during yesterday’s trading session. The ratings agency warned that the UK could lose its top credit rating if the government failled to hit its fiscal targets. Francesco Meucci of Moody’s said, “slower growth combined with weaker-than-expected fiscal consolidation efforts” could be cause “to reconsider our stance.” However Meucci did state that the outlook for the UK’s AAA credit rating remains stable, but the warning was enough to stir the foreign exchange market and the GBP/USD exchange rate fell to 1.6355, but this morning the rate had recovered to 1.6466 making it better to buy Dollars.

For the first time this week the UK will be publishing important economic figures, the main event being the Bank of England's interest decision for the month. Forecasts call for the central bank to hold key interest rates at the historic low of 0.5% and to maintain the stock of asset purchases at £200 billion. A surprise rate hike would bolster the Pound's standing, but given the ongoing weakness in the economy and Chancellor George Osborne's implementation of austerity measures, the chances of this happening are very remote. Prior to the interest rate, the UK's visible trade balance is expected to show a narrower deficit since March from £7.66 billion to £7.549 billion. The news could potentially lift the Pound before the BoE announce their rate decision.

A larger than expected decline in Germany’s export figures for April worked against the Euro yesterday, and the single currency was further hampered by an unexpected contraction in German industrial production over the same period. The figures showed that exports in Germany fell by 5.5%, a much worse result than estimates of a 3.0% decline, while the nation's industrial production contracted by 0.6% month-on-month when a 0.2% increase had been forecast. Europe's second round of GDP estimates did nothing to support the Euro despite confirming that Euro-zone growth was up by 0.8% from 0.3% in the 4th quarter of 2010 as sovereign debt fears continued to weigh on the Euro when news came out that Greece may not receive its next lot of aid. A report published by Reuters said that the EU, IMF and ECB would not provide further aid unless Greece could resolve under-financing in its adjustment programme. The news allowed the Pound to regain its footing against the Euro and the exchange rate rose to 1.1250 by the open of the Asian session and the GBP/EUR exchange rate had slipped back to 1.1238 by this morning.

As always when the Bank of England announce their interest rate decision, so too will the European Central Bank. Economists widely believe that the ECB will hold interest rates at the current level of 1.25%, however there will be huge interest in the conference that follows. Trader's will listen closely to ECB President Jean-Claude Trichet's comments for the key phrase of "strong vigilance" to be dropped, a phrase that signals that a rate hike will take place at the next policy meeting and this would bolster the Euro.

The Fed's Beige Book report headlined the US trading session yesterday, and showed that growth had slowed in the federal districts of New York, Philadelphia, Atlanta and Chicago, while other districts continued to grow at a steady pace, mainly led by manufacturing. Ongoing weakness was reported within the housing sector as demand fell for residential construction and real estate, and consumer spending was also reported lower as consumers struggle with rising food and energy prices and fewer job opportunities. The overall picture is one of sluggish growth in the US, meaning that the Federal Open Market Committee is unlikely to raise rates off the 0.25% low until a more robust recovery is achieved.

Today’s docket will be another quiet one for the US with April’s trade balance sheet standing out as the most influential of the figures out today. Forecasts call the US trade deficit to widen from $48.2 billion in March to $48.8 billion, an outcome that could potentially weaken the Dollar’s standing against the other majors. However the currency could receive a slight lift later into the session as weekly jobless claims figures look set to fall for both initial and on going claimants.

Foreign Exchange Daily Market Update 26/05/11

The Pound made strong gains against both the Euro and the US Dollar during yesterday's trading session following the release of this year's first quarter Gross Domestic Product (GDP) figure. According to official figures from the Office for National Statistics (ONS) the UK economy grew at 0.5% quarter on quarter to remain in line with analyst expectations. A breakdown of the GDP total revealed that growth was spurred by exports having risen at a rate of 3.7%, up from 1.7% in the previous quarter, and with imports falling by 2.3% the country's net trade deficit fell to £5.7 billion down from £11.5 billion in the last quarter of 2011. However, weaker than expected household consumption and investment dampened the economic recovery and prevented the Pound from making further gains. With the UK's growth still subdued, many foreign exchange traders speculate that Bank of England policy makers will refrain from raising interest rates later this year. However the Organisation for Economic Co-operation and Development (OECD) stated, after praising the government's austerity programme, that the Bank of England should begin raising rates this year in order to prevent runaway inflation.

The well of UK economic data appears to have, for the most part, dried up for the remainder of the week, leaving the Pound exposed to effects of wider macro-economic factors such as risk aversion. The only scrap of data due for release today is May's consumer confidence survey by GfK, which is expected to show that consumer sentiment remained firmly entrenched at -31 since April. The expected outcome in consumer confidence would tally with the contraction in personal consumption shown in the overall GDP figure.

Yesterday's trading session resulted in some very choppy price action for the Euro, in particular against the US Dollar; where it closing the day slightly lower overall. The single currency continued to be weighed down by Greece's sovereign debt woes, and softer than expected consumer confidence readings in Germany. The Euro did manage to retrace some of it's loses following news that the Finnish Parliament had approved the Portuguese bailout, despite concerns that Finland might block the rescue package.

Another relatively quiet day of European data will mean that currency exchange traders will be interested in comments from the European Central Bank (ECB)'s President Jean-Claude Trichet, and executive board member Ewald Nowotny on European economy, and Lorenzo Bini Smaghi's comments on inflation when speculating the Euro's movements. Other than that, traders will be keeping a close eye on Greece for any further developments in whether a restructuring of its debt will take place.

Orders for durable goods fell in the US by 3.6% during April to outpace the forecast decline of 2.5%, while durables exclusive of transportation goods sunk by 1.5% to fly against a 0.5% expected increase. Falling demand for aircraft and disruptions to the supply of car parts lead to the declines. The contraction in orders was a sharp reversal to March's upwardly revised 4.4% increase, and supports the data from the Richmond and Philadelphia Federal Reserves, which reported a slowdown in manufacturing activity. The data weakened the Dollar's standing in the foreign exchange market, allowing the GBP/USD exchange rate push towards 1.63.

Looking ahead to this afternoon, revisions to the first quarter GDP readings for the US could push the Dollar higher and retrace some of yesterday's declines. Forecasts call for the US economic growth rate to be revised up to 2.2% annually, compared to the preliminary reading of 1.8%. Further to this, personal consumption is expected to pick up to 2.8% from 2.7% and the core personal consumption reading, which excludes food and energy in its calculations, is set to remain at 1.5%. The US Dollar could also find support from this week's jobless claims figures which are forecast to see initial claims fall to 404,000 to 409,000, while continuing claims is set to fall from 3.711 million to 3.7 million.

Foreign Exchange Daily Market Update 19/05/11

The Pound suffered yesterday as the economic docket reinforced a negative outlook for the nation. The GBP/USD exchange rate slipped from the day's high of 1.6288 to 1.6105 when it came to light that the number of Britons claiming jobless benefits rose in April by 12,400. This is the fastest pace of jobless growth the country has seen since January of 2010, and came in despite estimates calling for no change to occur in the claimant count rate. Further to this the Bank of England published it's minutes to May's policy meeting, revealing that most members of the MPC see raising interest rates as a risk to economy's recovery. The minutes showed that the vote was split 6-3 in favour of keeping interest rates on hold this month. As usual Andrew Sentance voted for a 50 basis-point increase, while Spencer Dale and Martin Weale continued to vote for a 25 basis-point rise. Many trader's had hoped that; given the central bank's forecasts on inflation reaching 5% this year and recent data pointing towards these forecasts being true, that more policy makers would have shifted to a more hawkish stance, which would have lead to an appreciation in the Pound as rate hike expectations increase.

April's retail sales figures headline the UK's docket. Expectations had called for sales inclusive of fuel receipts to grow by 0.8% up from March's 0.2% increase, while excluding fuel sales, retail figures advanced by the same margin. However when the figure beat these expectations to see sales excluding fuel reciepts rise by 1.2% month-on-month and inclusive of fuel sales there was 1.1% increase, and further to this March's figures were revised up to 0.4% and 0.3% respectively. The market has reacted well to the news with the Pound putting in gains against the Dollar and the Euro.

A mixed outlook from ECB board members made it difficult for traders to speculate on where the Euro currency exchange rate is heading. Greece came back into the lime light when ECB board member Vitor Constancio said that restructuring Greece's debt could be in store to avoid a default, but argued that it ought to be "the last resort" as it entails "enormous consequences." However Governing Council member Ewald Nowotny said restructuring of Greece's debt is "definitely not an element of discussion" at the ECB. He then spoke of interest rates saying that rates will rise to match growth and inflation, despite the fact that further hikes could raise the risk of debt contagion. But for the most part it seems sovereign debt fears weighed on the Euro through the first half of yesterday as the EUR/USD dropped to a low of 1.4197 from 1.4286.

The European docket is looking exceptionally light today with the only event of interest being ECB President Jean-Claude Trichet and ECB Executive Board Member Gertrude Tumpel-Gugerell's commentary on the state of the European economy. Typically Trichet's comments hold a lot of sway within the foreign exchange market so expect the Euro exchange rate to move in either direction depending on the outlook Trichet provides.

The highlight of yesterday's North American trading session was the release of the FOMC's latest minutes. For the most part the minutes echoed Chairman Ben Bernanke's comments at the post-decision press conference in April, where he cited concerns among Fed policy makers over the "upside risk to the inflation outlook," and the downside risk to growth. However a few policy makers at the meeting said the increase in inflation risks meant that the Fed should stand ready to tighten financial conditions sooner than had been expected.

The week's second round of US housing figures make an appearance on today's docket. Existing home sales are expected to have risen by 2.0% in April, a slow down from March's 3.7% rise in sales. The data has the potential to weaken the Dollar's standing against the other majors as the housing market looks to remain week. With New homes sales having grossly missed expectations earlier in the week it is possible that today's figures could do the same.