Daily Foreign Exchange Market Update

Thursday saw the Pound stay unchanged against the Euro, opening and closing at 1.2315, peaking early morning to 1.2330 and dipping to a day low of 1.2304 around noon. The Pound however lost strength against the US Dollar yesterday with the GBPEUR rate opening at 1.6142, falling to a day low early morning to 1.6116. It peaked at midday to 1.6171 and fell throughout the rest of the day to close out at 1.6138. Yesterday saw retail sales being released from the UK with positive results coming out. In September sales in creased by 0.6%, much better then August results which fell by 0.1%. Clothing and footwear sales were up by 2%, showing solid growth from the UK in Q3.

Today will see UK Public Finances, the amount of money financed to the government, being released. The previous figure was a deficit, –9.6B, which is unfavourable and can be bearish for the Pound. The figure for September is set to come out at 4.7B, a more positive result.

The Euro was unchanged against the Pound and lost ground against the US Dollar in the foreign exchange market yesterday. The EURUSD opened at 1.3107, climbing mid-morning to 1.3129 before falling for the rest of the day – reaching a day low of 1.3078, closing slightly higher at 1.3098. Yesterday the main news was from the EU Summit where the leaders have agreed to set up a single eurozone banking supervision, meaning they are getting closer to a banking union which allows the central bank to intervene, if necessary, on any of the 6,000 banks in the eurozone. There was some news out of Italy with its third largest lender having its credit rating cut to junk (Baa3 to Baa2) by Moody’s. Today will see German Producer Prices being released which are set to rise by 1.6%, same as last years result, showing an increase in the prices paid by domestic producers for goods.

The US Dollar gained strength against both the Pound and the Euro during yesterday’s market session even though US initial jobless claims came out a lot higher then expected, 388K compared to 365K. Today there will be no data coming out of the US.

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

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 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.