Daily Foreign Exchange Market Update

Yesterday the Pound strengthened against the Euro and the US Dollar in the foreign exchange market. The GBPEUR rate opened the day at 1.2466, gaining strength over the first few hours of trading, peaking to a daily high of 1.2494 mid-morning. Throughout the rest of the day it then lost strength, dropping to a daily low of 1.2441 early afternoon, closing slightly higher at 1.2474. The GBPUSD rate opened down at a daily low of 1.6131, it then gained ground and peaked at midday to a rate of 1.6175 but then slipped across the rest of the day to close out at 1.6136. It was a quiet day for data release in the UK with the most significant piece being Nationwide house prices year on year for October showing the change in selling price of homes with mortgages backed by Nationwide and is the leading indicator of the housing industry’s growth because rising house prices attract investors and spur industry activity. Today will see Construction PMI being released, a leading indicator of economic health as it reacts quickly to market conditions. It came out this morning at 50.9, above the level of 50 which shows an expansion in the construction industry.

The Euro lost ground against the Pound but strengthened against the US Dollar in yesterday’s market session. The EURUSD rate opened the day at 1.2939, falling sharply to a daily low of 1.2924 early morning, before quickly gaining back the strength and peaking to 1.2983 at midday, closing the day lower at 1.2935. The main piece of information coming from the Euro-zone yesterday was Ireland’s unemployment rate for October which stayed at 14.8%, a much higher result then the rate of 4.5% seen pre-banking crisis in June 2007. Today has seen Euro-zone PMI for manufacturing come out with the result only slightly better then the previous result, 45.4 compared to 45.3 last month, still below the headline figure of 50.

The US Dollar weakened against the Pound and the Euro in the foreign exchange market yesterday. This came off the back of consumer confidence and ISM Manufacturing results that were better than expected. Today will be a big day for the US economy with jobs reports coming out later today. The unemployment rate is set to slightly increase from 7.8% to 7.9% and the change in non-farm payrolls which is actually set to rise from 114K to 125K.

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Foreign Exchange Daily Market Update 18/07/11

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The Pound gained impressively against the Euro and the US Dollar in the foreign exchange market last week. The GBP/EUR rate moved up from 1.1293 on Monday; to trade at 1.1412 by the close of business on Friday, the exchange rate hitting a high of 1.1429 on Tuesday. The GBP/USD exchange rate also showed gains across the week; from Monday’s open at 1.5970, the rate moved up to trade at 1.6145 by Friday’s close. The economic data from the UK during the week wasn’t overly positive though, with CPI (inflation) figures showing a drop in the level of inflation, both monthly and annually, which takes pressure off the Bank of England to look at raising the base-rate anytime soon, as elevated price-growth is easing of its own accord. The UK’s visible trade balance for May also increased its negative deficit, reinforcing the nation’s over-reliance on imported goods; the negative balance increasing from -£7,643,000 to -£8,478,000. The labour market is also showing little sign of improvement, with the unemployment rate remaining unchanged at 7.7%, along with the claimant count rate remaining at 4.7%. There was some negative news though, with jobless claims for June increasing from 22,500 to 24,500 amid expectations for a drop in the number of new claims.

The week ahead for the UK is not data-heavy, but will have some high-level market data. Wednesday will see the release of the Bank of England’s minutes form their last policy meeting. The market will be looking for any rhetoric from policy-makers in regards to future policy, and also the all important voting numbers will be studied, to see if any of the committee sees fit to either increase the asset purchase target, or a need to increase the base interest rate. Amid last weeks falling inflation figures, it seems increasingly unlikely that the central bank have any room to start tightening policy, with a rate-hike having the potential to destroy an already weak housing and labour market. Thursday will see the release of public sector net borrowing figures, with the foreign exchange market likely to show a deep interest in whether the UK government are keeping to their promise of reducing the UK’s debt level and evening up the balance sheet. However, any cuts must be made sensibly as not to effect overall economic growth in the UK.

The Euro weakened considerably against the Pound throughout last week, and also dropped massively against the US Dollar before recovering slightly by the end of the week. The EUR/USD rate opened on Monday at 1.4140, falling to 1.3845 on Tuesday before coming back steadily to trade at 1.4147 by Friday’s close. The currency was not helped by the fact that Greece’s credit rating was cut to ‘CCC’; the lowest level possible, and also European bank stress test results showing that 8 of 90 banks tested by the European Banking Authority conclusively failed the tests for required capital levels and exposure to sovereign debt. Economic data released throughout the week also showed that Euro-zone industrial production fell in June, from an annual rate of 5.3% down to 4.0. CPI (inflation) figures also showed no price growth in the annual or monthly rate, following a rate-hike by the ECB at their last policy meeting. With inflation seemingly under control, it does not bode well for the Euro-zone, as the European market will continue to face fierce pressure over the coming week.

The week ahead will see some high-level market data, starting on Tuesday with the German ZEW economic sentiment survey; with any negative downturn in this reading likely to put pressure on the currency. Wednesday will see the release of German producer price figures, along with Euro-zone consumer confidence, which has the potential to affect the market hugely. Thursday and Friday also have influential data set for release, with German and Euro-zone PMI figures set to cross the wires, along with German IFO readings for business climate, current assessment, and expectations, along with Euro-zone industrial new orders figures.

The US Dollar came under considerable pressure last week; with Congress still yet to agree on an increase to the US’s debt ceiling, which if unresolved could see the US default on debt repayments due for August 4th. This would have drastic consequences on the market, and potentially the US currency, with ratings agency’s confirming that they would cut the US’s credit rating should a default occur. The economic data released from the US last week painted a fairly mixed picture of the overall economy. Figures showed that the US’s negative trade balance increased, from -$43.6billion to -$50.2billion, along with PPI levels dropping, from 7.3% down to 7.0%. CPI (inflation) figures showed no increase in the annual rate of 3.6%. The Dollar was further pressured on Friday, with the highly-influential University of Michigan confidence survey showing a drastic drop, from the previous reading of 71.5, down to 63.8. This figure is considered to be a good early indicator of any economic downturn in the US, with the currency exchange market reacting accordingly upon release, with the Dollar weakening.

The US economic docket this week will mostly focus on the housing market. Tuesday will see housing starts figures released along with building permits figures for June. Wednesday will see existing home sales figures released, with the market forecast for a rapid increase in the level of sales, which would be positive news for the housing market and the overall economy. Thursday will see house price index figures for June released, along with the Philadelphia Fed Index which will give a good insight into the manufacturing sector in the US. A higher reading from the Philadelphia Fed index indicates a positive outlook for the manufacturing sector, contributing to overall economic growth, so could be beneficial for the currency.

Mike Hood
KBRFX

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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.