Foreign Exchange Daily Market Update 05/08/11

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The Pound made good advances against the Euro, but fell against the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up throughout the day, from 1.1469 to 1.1514 by the day’s close. The GBP/USD exchange rate however, fell; from 1.6357 at the morning’s open, down to 1.6303 by the end of the day. The main economic event in the UK yesterday was the Bank of England’s latest interest rate decision, and as expected there was no change to either the base rate, or the bank’s asset purchasing target. The market showed hardly any instant reaction, and it was left to bigger news from Europe to affect the currency’s movement.

Today will see PPI output figures released from the UK, with the forecast for the core level to hold at 3.2%, but the n.s.a figure to show a slight improvement from 5.7% to 5.8%. The core index figure is usually a better gauge of inflation, and the Bank of England will welcome a figure that shows no increase in inflationary pressures; but the currency exchange market may not view stagnant price growth as positive, as it lessens the chance of an interest rate-hike.

The Euro fell against both the Pound and the US Dollar yesterday, the EUR/USD rate dropping from 1.4259 down to 1.4157 throughout the day. The currency was not helped by the fact that ECB President Trichet may be forced into buying Spanish and Italian securities to try and fight against the debt contagion problem throughout the Euro-zone. At yesterday’s policy meeting, the ECB kept the base rate on hold, but with Italy and Spain’s economies seen by the market as ‘’too big to bail’’ President Trichet indicated that the bank will be purchasing bonds to try and calm the markets worries that have now diverted away from the US, towards Europe. Stock markets fell throughout Europe yesterday and also opened with losses this morning.

The European economic docket today will see the release of German industrial production figures, with the annual level set to rise from 7.6% to 8.1%, but the monthly output is expected to fall from 1.2% to 0.0%, which may not be positive for the currency, as continued lower production could lead to a slowdown in economic growth.

The US Dollar seemed to benefit from the turmoil in Europe yesterday, as it showed a marked improvement against the Pound and the Euro. Now the nation is not under threat of default, the market seems to have reverted to the Dollar as a ‘safe-haven’ currency, and with no economic data of note released form the US yesterday, the movement can really only be attributed to poor sentiment towards the UK and Europe.

Today will see some high-level market data released from the US, with the market-moving non-farm payrolls report set for release this afternoon, along with the latest unemployment rate reading. The non-farm payroll figures are expected to see a rise of 85,000, but with the figure notoriously hard to predict, and renowned for producing surprises, the currency could well see sharp movements throughout the afternoon, particularly on release.

The Australian Dollar continued to weaken against the Pound yesterday, with the GBP/AUD rate moving up from 1.5221 to break through 1.5400 and is trading above 1.5500 this morning. Despite the nation remaining almost impervious to the global recession 18 months ago, a poor labour market, combined with the worst set of retail sales figures for years, is seeing the currency face fierce pressure.

Mike Hood
KBRFX

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Foreign Exchange Daily Market Update 04/08/11

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The Pound picked up against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR rate moved up from the morning’s open at 1.1447 to trade at 1.1460 by the day’s close, with the GBP/USD exchange rate rising from 1.6305 to 1.6409 throughout the day. The sole piece of economic date from the UK was PMI services figures for July, with the index showing improved growth from the previous month’s level of 53.9, up to 54.4.

Today’s main event will be the Bank of England’s interest rate meeting, with the market fully expecting no change in either the base rate, or the asset purchase target; but despite inflation remaining well above the bank’s target level of 2.0%, weak economic growth is preventing policy-makers from raising rates from their current historic low of 0.5%. There is unlikely to be any comment from the bank alongside today’s decision, with the market having to wait for the release of the minutes for the possibility of any change in the voting numbers.

The Euro slipped slightly yesterday, but did make some gains against the US Dollar, the EUR/USD rate moving up throughout the day from 1.4240, to trade at 1.4317 by the day’s close. The European economic docket yesterday was fairly positive, with Euro-zone PMI services, and the composite figure showing gains for the month of July, up from 51.4 to 51.6, and 50.8 to 51.1 respectively. Retails sales for the Euro-zone also saw impressive monthly growth, the index showing a jump form -1.3% to a positive 0.9% for the month of June. This did seem to give the currency a slight boost, despite continued claims by various news agencies that Spain will be the next European nation to seek additional funding due to its burgeoning debt-load.

The European Central Bank will be meeting today, like their English counterparts; to decide on any changes to the current base interest rate. After hiking rates twice this year to combat inflation throughout the Euro-zone, it is unlikely that the ECB will do so gain this month; but the market is expecting to see further tightening before the end of the year. Traders will be paying close attention to the post-decision press conference for any visible signs of future policy movements, and ECB President Trichet may well face some tough questions in regards to the health of periphery nations such as Spain, Italy and Portugal.

The US Dollar lost ground all across the currency exchange market yesterday, despite the fact that Congress managed to pass legislation preventing the nation defaulting on its debt repayments. The currency is still facing pressure, as the market picks apart the finer details of the bill, which contains hundreds of billions of dollars worth of cuts, which could well contribute to a slowdown in overall economic growth in the US. Yesterday saw a negative outlook in terms of economic data, with factory orders for June falling drastically, from 0.6% down to a negative reading of -0.8%. ADP employment figures for July also fell from the previous month’s level of 157,000 jobs added, with this months’ figure coming in at 114,000 jobs added. The other figure of not was the ISM non-manufacturing index, which was also a disappointment, with the level falling from 53.3 down to 52.7.

There is no economic data of note scheduled for release from the US today, with only low-level market data on the docket. The currency will therefore be open to movement based on news events and data from the world’s other major economies.

One currency worth taking note of currently is the Australian dollar, which has started to weaken against the Pound, the GBP/AUD exchange rate moving above 1.5300 from last weeks levels closer to 1.4900. Negative retail data, along with poor market confidence has seen the Aussie Dollar slide over the past few days, with investors seeing an increased chance that the Reserve Bank of Australia may start cutting interest rates before the end of the year, despite inflation remaining well above the bank’s 3.0% target. Saul Eslake, a director at the Grattan Institute, said gloomy retail sales figures - the worst since the 1990s recession - prompted investors to believe the Reserve Bank's next move was a cut.

Mike Hood
KBRFX

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Foreign Exchange Daily Market Update 15/07/11

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The Pound continued its surge against the Euro and the US Dollar in the foreign exchange market throughout yesterday. The GBP/EUR rate carried on its upward course, from 1.1349 at the open, to close at 1.1374, while the GBP/USD exchange rate pushed on slightly from the morning’s open at 1.6116 to close at 1.6123. There were no significant data releases from the UK yesterday, with the movements in the currency market, particularly against the Euro being attributed to the ongoing unresolved debt situation in Greece.

There is no economic data scheduled for release from the UK today either, but with plenty of market-moving figures primed for release from the Europe and the US, there could well be sharp movements in the exchange rates today.

One country; and its currency that has remained fairly unaffected by the problems in the world markets over the past year has been Australia, and the Australian Dollar. The currency has strengthened considerably across the board over the past 6 months, with the GBP/AUD rate currently trading at 1.5138; but the nation that has been seen by the market as ‘recession-proof’ is starting to show some signs of weakness. Despite a relatively low unemployment rate of 4.9%, and a currency that has strengthened by 21% against the US Dollar over the past year; languishing consumer spending across the country has led the market to speculate that the Reserve Bank of Australia may postpone their next interest-rate rise, by anything up to three months. With economists wary of the effect a fall-out in Europe could have on the country, where consumer spending accounts for around half the overall economy, the market will be watching any developments very closely.

The Euro has continued to suffer in the foreign exchange market, with negative sentiment towards the Euro-zone rapidly increasing by the day. Greece’s credit rating now stands at ‘CCC’ the lowest possible level; and with news agencies reporting that Italy could be the next country verging on default, despite a rate-hike from the ECB, the currency is weakening considerably. There have been stories in the morning’s UK papers that the Euro-zone could be set for a split, with the stronger member nations Germany and France set to distance themselves from the weaker member states, with the possibility of a two-tier Euro currency being mooted.

Today will see the results of European bank stress tests being published, and with the market predicting a negative outcome overall, the currency could weaken further, with Italian banks in particular being singled out as having dangerously low levels of capital, against what is deemed as some high-risk securities on their balance sheets.

The US Dollar has been weakening since the release of Fed Chairman Ben Bernanke’s semi-annual report to Congress on Wednesday. The EUR/USD rate has continued to fall, from yesterday’s open at 1.4198 down to 1.4162 by the market’s close. The economic data released from the US yesterday was also negative, with retail sales figures for June showing no improvement, holding flat at 0.2% amid expectations for a rise to 0.4%. Producer prices also fell, with the annual rate dropping from 7.3% down to 7.0%.

The US economic docket today does contain two high-level pieces of market data. CPI (inflation) figures for June will be released at 13:30, with the forecast for no change in the annual rate, and also the University of Michigan’s confidence survey will be published this afternoon; with the market poised to react to any positive or negative increase in the reading.

Mike Hood
KBRFX

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