Daily Foreign Exchange Market Update

Last week we saw the Pound lose ground overall against the Euro and the US Dollar in the foreign exchange market. The GBPEUR rate opened the week at 1.2355 and peaked Tuesday afternoon to a weekly high of 1.2406 but slipped across the second half of the week, hitting a weekly low of 1.2296 an hour before it closed the week out at 1.2406 on Friday. The GBPUSD rate did not see much overall change across the week, opening at 1.6027 and closing it out at 1.6026 however we saw it hit a weekly low of 1.5962 on Wednesday afternoon and peak to 1.6060 when the markets opened Friday morning.

The main news out of the UK last week was that of the new Governor of the Bank of England being announced as current Bank of Canada Governor, Mark Carney. It came as a surprise to the markets but many analysts believe that it is a safe choice due to the fact that Canada has not faced a banking crisis like the UK has. Earlier in the week the revised GDP figure was released and stayed at 1.0%. On Thursday the Financial Stability Report was released followed by a conference held by Mervyn King who announced that may need more capital to be used as protection against possible future losses.

This week PMI results are set to be released in the sectors, Manufacturing, Construction and Services. Thursday will see the Bank of England Monetary Policy Committee (MPC) decide on whether or not to keep the base rate and asset purchase programme the same. Both are set to stay as they are although many believe that the asset purchase programme may be increased soon from £375B.

The Euro gained against both the Pound and the US Dollar during last week’s market session with the EURUSD rate opening at 1.2972 and closing the week out at 1.3009. On Wednesday afternoon it hit a weekly low of 1.2880 and peaked at the open of trade on Friday at 1.3020. Last week we saw German CPI (inflation) come out at -0.1%, in line with predictions. Euro-zone unemployment rate was also released on Friday and came out as expected at 11.7%. This week we will see Spanish unemployment change be released on Tuesday. The previous result was the highest since February, 128.2K showing how much the financial crisis across the Euro-zone has affected the labour market. On Thursday the ECB will meet to decide on the base rate which is expected to remain at 0.75%.

The US Dollar weakened against both the Pound and the Euro during last week’s foreign exchange market session. US preliminary GDP was released last week, coming out higher than last year but lower than expected, at 2.7% showing an expansion in the US economy. Consumer confidence came out on Tuesday at 73.7, higher than the 73.1 predicted. Today manufacturing PMI will be released and is set to fall from 51.7 to 51.5. It is a big week for the labour market as non-farm unemployment change and the unemployment rate will be released later this week. Non-farm unemployment change is set to fall from 158K to 141K and the unemployment rate is set to stay at 7.9% on Friday.

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Foreign Exchange Daily Market Update 06/06/11

Last week's data out from the UK was largely disappointing, which led the Pound to trade lower against the Euro. There was mixed price action versus the US Dollar across the week, as the US try to deal with their own economic problems. Wednesday's UK mortgage approvals for April showed that lending was still subdued, while the first of the Purchasing Manager's Index (PMI) triplet, the manufacturing PMI, under performed for May. The PMI for the services sector also came in below expectations on Friday, to show a slow down in activity since April. Only the construction sector out performed the consensus rising from 53.3 to 54.0.

This week's calendar is looking very light indeed, with nothing major to be reported until Thursday, when the Bank of England (BoE) will be announcing this month's interest rate decision. With this being the first month that the Monetary Policy Committee (MPC) will be voting without the renowned hawk Andrew Sentance, the chances of a further shift in sentiment towards a rate-hike seem less likely. April's trade balance deficit will also be reported on Thursday, with expectations calling for the deficit to have narrowed since March. Friday will see April's industrial and manufacturing production figures announced which are set to show a slow down in production and could potentially weaken the Pound's standing. Lastly May’s Producer Price Index will close the week’s data set and could push up rate hike expectations should the market see a large growth rate than the forecasted 3.40% increase in prices.

The foreign exchange market has witnessed the Euro continue to gather strength, despite ongoing issues of sovereign debt. The single-currency's upward movement started on Monday with news that Greece would undertake another round of austerity measures in a bid to secure funds from the International Monetary fund (IMF) and the EU. The news overshadowed Germany's disappointing decline in unemployment by 8,000 individuals, but the Euro's rally was short lived as by Thursday Moody's downgraded Greece's credit rating by three notches and raised its risk of default to 50%. By Friday though the Euro had recovered, in part due to an upward revision in May's Services PMI for Germany and the Euro-zone overall, but mostly due to some devastating figures from the US, which saw the currency end the week at 1.4430 against the Dollar and 1.12 versus the Pound.

In contrast to the UK docket, there are a number of key European figures to watch for this week, the most important of which being Wednesday's 1st quarter Gross Domestic Product (GDP) reading for the Euro-zone. The figure is expected to remain unchanged at 0.8% growth from the previous quarter. A larger than expected increase in GDP will extend the Euro’s gain while weaker growth will push the currency lower. Market traders will then look towards the ECB's interest rate decision on Thursday, which could remain unchanged at 1.25% given previous commentary from ECB President Jean-Claude Trichet that higher borrowing costs could jeopardise the recovery in weaker European peripheries. However Monday's Producer Price Index (PPI) could raise rate hike expectations if inflation comes in above the 6.6% consensus and in turn the currency could receive a boost. Keeping with inflation, Germany’s Consumer Price Index (CPI) figures on Friday could potentially contradict the ECB’s decision to hold rates (if that is the central bank’s decision) if inflation comes in above the expected 2.40% increase. This is a very real possibility given that Germany’s economic growth has placed increased pressure on price growth.

Economic figures out from the US generated a bearish trend for the US dollar. After a slow start to the week May's consumer confidence index was published on Tuesday showing a drop in consumer sentiment from 66.0 to 60.8. The downbeat news continued on Wednesday when payrolls processor ADP reported that in May the US economy added a mere 38,000 jobs massively missing estimates for 175,000 to be added. Further to this manufacturing activity slowed in May according the ISM manufacturing index which fell to 53.5 from 60.4. However the greatest blow to the US economy came on Friday when the Labour Department announced that Non-farm Payrolls came in well below the consensus of 165,000 jobs with an increase of 54,000. This left the Dollar trading at 1.6420 on Friday against the Pound, with further loses being made against the other safe havens; the Japanese Yen and the Swiss Franc, while against the Australian, New Zealand and Canadian Dollars the US Dollar managed to close the week relatively unchanged from its open.

Meaningful economic data from the US will be in short supply this week leaving traders waiting until Wednesday for the first significant event, the Fed's Beige Book report. Given the recent flurry of weak economic data, the beige book is unlikely to paint a rosy picture for the state of the US economy, so its release could potentially push the Dollar lower. The Dollar could face further woes when Thursday's trade balance sheet is released for April. Economists believe that the US trade deficit will widen to $48.8 billion from $48.2 billion.

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 02/06/11

Yesterday's disappointing economic data reinforced a weakened outlook for the UK, leading the Pound to trade lower on the currency exchange market. The exchange rate on GBP/USD slipped to a low of 1.6373 as manufacturing grew at its slowest pace in 20 months during May as confirmed by the Purchasing Manager's Index (PMI) slipping to 52.1 from 54.4. Mortgage approvals for April didn't help either when the number of mortgages approved totalled 45,200 missing the forecasted figure of 47,000. The data has dampened expectations that the Bank of England (BoE) will raise interest rates this year as higher interest rates could damage the nation's economic recovery, and while the foreign exchange market continues to foresee rates remaining at their historic low, the Pound may well remain suppressed.

On today's docket the construction sector's PMI, stands alone in terms of data to be released from the UK. Economists expect activity in the construction sector to have picked up in May with the index set to rise from 53.3 to 53.5. The data has the potential to lift the Pound should it come out on target; however a lower than expected reading will simply extend the Pound's loses against the other majors.

The Euro continued to gather strength over the course of yesterday's European session although weak manufacturing data lead to some volatility on the EUR/USD exchange rate which ranged from 1.4384 to 1.4458, while against the Pound, rates fell to a low of 1.1350. Germany's finalised PMI reading for May showed that manufacturing activity was lower than previously thought as the index fell from the preliminary score of 58.2 to 57.7, and the Euro-zone index followed a similar path, revised down from 54.8 to 54.6. Today the Euro-zone will be taking a day off from releasing any economic data; as such traders will once again focus on developments in the Greek debt crisis for guidance on price action.

The US has not fared much better with regards to economic figures, as the ADP Employment change survey showed that the US economy added a bitterly disappointing 38,000 jobs in the month of May. This fell drastically short of the consensus figure of 175,000 jobs which was lower than April's addition of 179,000. Further to this the ISM manufacturing index showed that activity within the manufacturing sector slowed to its lowest level since September 2009, when the index fell from 60.4 to 53.5. Yet despite the downbeat data, the US Dollar advanced against the likes of the Pound, the Euro, the Canadian Dollar and many others, failing only to make gains against the other safety linked currencies: the Swiss Franc and Japanese Yen.

Given the poor performance of yesterday's ADP employment figure, today's weekly jobless claims will take on greater significance given that they can support or discredit the ADP report. Last week's initial jobless claims figure proved disappointing, with the number of first time claimants rising. With weakness in the labour market being evident the same outcome may occur in this week's reading, despite the consensus calling for claims to drop to 417,000 from 424,000. A lower than expected reading would dampen the outlook for Friday's Non-farm Payroll (NFP) figure to provide a positive outcome. Still historically there has been a difference between the NFP and the ADP figures in terms of gauging the health of the US labour market, so yesterday's weak figure may not have much bearing on Friday's report.