Foreign Exchange Daily Market Update 22/06/11

The Pound ended up losing ground against the Euro, but making a small gain against the US Dollar through the course of yesterday. The GBP/EUR rate slipped down to 1.1269 from the mornings open close to 1.13, with the GBP/USD exchange rate picking up a touch from 1.6227 to 1.6238 by the end of the day. There wasn’t a great deal of data released from the UK, but the figures that were published showed that Public Sector finances increased in the month of May, from 6.6 billion pounds up to 11.1 billion pounds. But contrary to this, Public Sector Net Borrowing dropped from 16.5 billion pounds to 15.2 billion pounds, showing that the UK Government has increased the amount of funds it diverts into the public sector; but is finding this capital from non-borrowed sources.

The major data event for the UK today will be the release of the Bank of England’s minutes from their last policy meeting. Whilst there was no change in either the base rate, or asset purchase target at the last meeting; the minutes will be studied closely for any signs of a shift in rhetoric; and the all important voting numbers, which may be indicative of future policy. The foreign exchange market is likely to take direction from any surprises within the minutes.

The Euro managed to gain some ground against the Pound and the US Dollar yesterday, despite the ongoing Greek bailout situation. With finance ministers pushing hard for a solution, the market may be viewing a possible resolution as a sign of strength within the European community, and consequently the GBP/EUR rate is still fairly low, making it tougher for UK consumers buying Euros. The economic docket from Europe yesterday was also fairly disappointing, with the ZEW economic surveys showing that sentiment in Germany and the Euro-zone overall fell drastically.

Today will see the release of the Euro-zone industrial new orders figures from April, and also Euro-zone consumer confidence figures for June. The currency could strengthen if the figures show positive gains, but any push is more likely to come from the bigger ongoing risk-event of Greece’s sovereign debt problems and the potential contagion of this to other nations such as Ireland, Spain and Portugal.

The Dollar did fall slightly against the Euro and the Pound in the currency exchange market yesterday, despite some fairly positive economic figures. Existing home sales figures showed an increase for the month of May, with sales figures up to 4.81 million from the previous month’s level of 4.80 million. This took the market growth percentage up from -5.00% to -3.80%, a sign that the housing market is gradually improving.

Today’s US economic docket will focus solely on the Federal Reserve’s interest rate decision, and the accompanying press conference. Exactly as the market will focus on the Bank of England’s minutes release, any shifts in rhetoric or policy stance will affect the currency; with a positive rhetoric from the Fed having the potential to push the GBP/USD exchange rate back down, making it more expensive for UK consumer buying dollars.

Mike Hood
KBRFX

Foreign Exchange Daily Market Update 21/06/11

The Pound closed yesterday lower against the Euro, but slightly higher against the US Dollar in the foreign exchange market. The GBP/EUR rate opened at 1.1354, but closed trading just under 1.1315; the GBP/USD rate picking up to 1.6206 from the day’s open at 1.6128, a good gain for the Pound, making it slightly more attractive for UK consumers who are buying Dollars. There were no economic data releases from the UK yesterday, so the currency was left open to market movements based on sentiment and news from other world economies.

Today’s UK economic docket will focus on public sector finances; with the monthly figures for public sector net borrowing and public finances set for release. The market will watch closely to see if the UK Government is sticking to it’s pledge to make deep cuts to reduce the overall debt level, but there could well be a knock-on effect that harsh austerity measures will affect overall economic growth.

The Euro managed to regain some strength against the Pound yesterday, even in the face of disappointing economic data. Yesterday saw the release of German producer price figures for May, and with a sharp drop in the month-on-month figure, from 1.0% growth to 0.0%, and also the annual level falling from 6.4% to 6.1%, it would have made sense for the Euro to weaken slightly, but the result was completely the reverse. It may well be that the currency is finding strength from the strong rhetoric from the EU, that it will reach a suitable solution for Greece, with European Commission President José Manuel Barroso insisting that Greece will ‘never’ be allowed to go bankrupt. Barosso drew parallels with the global financial crisis that started with US banking giant Lehman Brothers going bust; and stated ‘’A country going bankrupt is much more delicate than a bank that would affect all EU members. No, we should never allow a country to go bankrupt.’’ Whilst the Euro continues to find strength, it will make it more expensive for UK consumers who are buying Euros.

Today’s economic docket from Europe contains the highly influential ZEW Economic Sentiment surveys for Germany and the overall Euro-zone. The ZEW survey conveys the opinions of select financial experts on the direction of inflation, interest rates, exchange rates, and the stock market over the next six months, and any shock result in its findings does have the potential to strengthen or weaken the European currency. EU finance ministers are also still working hard to try and produce solution to Greece’s debt woes, and the currency exchange market may take direction from the outcome of this.

The US Dollar weakened against the Pound throughout yesterday, and with no economic data to support the Greenback it also fell sharply against the Euro. The EUR/USD rate peaked at 1.4314, up from the morning’s open at 1.4203.

The economic docket from the US today is comprised solely of housing data; with existing home sales figures for May set for release. Sales are expected to drop, both annually and month-on-month, and in a market that is still fairly weak in the US, it is not a positive sign for the overall economic picture, and could weaken the Dollar slightly on release.

Mike Hood
KBRFX

Foreign Exchange Daily Market Update 17/06/11

The Pound opened and closed almost unchanged against both the Euro and the US Dollar in the foreign exchange market yesterday. Despite a slight fall in the middle of the day, GBP/USD opened at 1.6142, and closed around 1.6128, with GBP/EUR opening just shy of 1.1420 and closing at levels of 1.1396. There was only one key set of figures on the UK’s economic docket yesterday, and that was Retail Sales result for May. The core result was a drop, both month-on-month and annually; falling from 1.1% to -1.6%, and from 2.3% to 0.00% respectively. This can be viewed as a negative sign for the UK, as it shows a drop in consumer demand, and consequently, a potential slowing in economic growth.

Turning to today’s UK economic docket, there are no figures set for release; which leaves the Pound open to movement in the currency exchange market based on news events and data from the world’s other major economies.

The Euro held firm against the Pound and The US Dollar yesterday, albeit after a heavy drop against the Pound in the very early hours of Thursday morning. Market expectations for a rate-hike in Europe may have been dealt a slight blow yesterday, with the release of Euro-zone CPI figures. The figures showed that the risk of inflation has dampened slightly; the core index reading showing that price growth dropped from 1.6% to 1.5% month-on-month, and fell slightly from 2.8% down to 2.7% annually. While the figure still remains above the ECB’s target level, it may be an indication to the market that the heightened levels are temporary, and do not require a tightening of monetary policy.

While the delicate situation regarding a potential bail-out for Greece continues, the Greek Prime Minister George Papandreou appointed current Defence Minister Evangelos Venizelos as his new finance minister and deputy prime minister in a government reshuffle yesterday. Traders will be watching the situation closely, with Germany being one of the most likely member states to push for an immediate solution.

The economic docket for Europe today will focus on the Euro-zone trade balance results for April. Should the figures show a swing towards exports outweighing imports in the Euro-zone (a trade surplus) it would have the potential to provide some buoyancy to the Euro, as it would show an increased flow of funds into Europe. If the Euro was to start finding some strength, it would start making it more expensive for UK consumers that are buying Euros.

The US Dollar held steady yesterday, after making huge gains against the Pound on Wednesday, the GBP/USD rate staying at mid 1.61 levels throughout most of Thursday. The huge drop on Wednesday down from 1.6430 has suddenly made it more expensive for UK consumers buying Dollars. The US economic docket yesterday did show some encouraging signs for the economy – building permit figures showed an increase, up from 563,000 to 612,000. Housing starts were also up, from 541,000 to 560,000. The labour market received a welcome boost when figures showed that initial jobless claims fell month-on-month, down from 430,000 claims to 414,000 claims.

Today’s US economic docket will focus solely on the University of Michigan’s confidence survey for June. The figure is considered to be one of the foremost indicators of consumer sentiment in the US, and any drop is usually considered an early indicator of economic downturn. Analysts are predicting a slight drop, from 74.3 to 74.0, but this may not be a large enough swing to hurt the US currency too much.

Mike Hood
KBRFX

Foreign Exchange Daily Market Update 31/05/11

The British Pound opened the week a touch above 1.65 against the US Dollar, following a fairly positive week of economic data in the UK, which saw Consumer Confidence rise by the second highest level seen since 1993. Add to this an increase in house prices, Government borrowing dropping by record levels, and the release of 1st quarter Gross Domestic Product (GDP) figures showing 0.5% growth, it has certainly helped the exchange rate no end.

It is unlikely though, that this week will follow a similar pattern, albeit due to the fact that the UK economic calendar is decidedly empty. Apart from Purchasing Manager Index figures for manufacturing, construction and services being released on consecutive days from Wednesday, the foreign exchange market will be more than likely to take direction from the European and US economies, and broader-based risk sentiment.

The Euro continues to face severe pressure, but has found support as an article published by the Wall Street Journal, suggested that Germany is considering ‘a rescheduling of Greek bonds to facilitate a new package of aid loans’, as it seems that the Euro-zone’s strongest economy accepts that without their help, the possibility of Greece running out of funds in the next month could have disastrous consequences for the rest of the member states.

In terms of monetary policy, the currency exchange market seems to be speculating that the chances of another rate-hike from The European Central Bank (ECB) in June are rapidly diminishing. With debt contagion worries still weighing heavily on policy-makers mind’s, the realisation is that whilst raising the interest rate once again would see a short term boost for the Euro currency, the knock-on effect could be a complete wipe-out of growth across the region.

The US Dollar could well benefit from any potential fall-out in Europe, and signs of weakness in the UK. The greenback is seen as one of the world’s ‘safe-haven’ currencies, and the longer there is indecision in regards to the EU, the IMF, and even the Bank of England, the dollar may well see welcome flows which benefit the exchange rate.

This coming week will be data-heavy for the US, so expect any surprises to make big moves in the foreign exchange market. Tuesday will see the release of Consumer Confidence figures for May, moving on to ISM Manufacturing figures on Wednesday, and concluding with the potentially market-moving Non-Farm payroll figures on Friday. All of these data events are seen by the market as having high-importance in terms of the overall health picture of the US economy, particularly key components such as the manufacturing and labour markets, so traders will be exercising caution, looking for any surprises.

Foreign Exchange Daily Market Update 18/05/11

The Pound saw a sharp appreciation in the currency exchange markets yesterday morning, following a bigger than expected rise in UK consumer prices. The data showed UK CPI at a 2 and-a-half year high of 4.5%, beating analyst’s estimates for a reading of 4.2%. However, the currency pared its gains later on as investors acknowledged higher inflation for now was unlikely to lead to an interest rate rise before year-end. Jeremy Stretch, currency analyst at CIBC commented ‘’ There were rumours of a strong figure around 4.4 percent, but it's higher than that’’, but added ‘’ Sterling hasn't really been able to push on after the knee-jerk reaction’’.

In a letter to the UK Treasury, Bank of England (BoE) Governor Mervyn King said that trying to bring inflation back to target quickly (by raising the key interest rate) would risk harming the economy and undershooting the central bank's 2.0 percent target in the medium term. Rate-setter Ben Broadbent, who will replace one of the most hawkish members of the Monetary Policy Committee (MPC), Andrew Sentence next month, told the government's Treasury Committee there remained "huge risks" both to raising or not raising rates, adding that he would have broadly followed the BoE's direction on policy, suggesting he does not share Sentance's strong arguments for raising rates.

This morning saw the release of the BoE’s minutes from the last policy meeting. There was little surprise when the minutes revealed no change in voting for either the key interest rate, or the central bank’s asset purchase programme; the MPC members voting 6-3 and 8-1 for the maintaining of the current interest rate and asset purchase target respectively. This news was closely followed by UK unemployment figures, which showed that the number of unemployed fell for the 3 months to the end of March by 36,000 to an overall figure of 2.46million. This change leaves the UK unemployment rate lower at 7.7%, down from 7.8%, but the claimant count actually rose from 4.5% to 4.6% for April.

The Euro currency has been on a downward trend through the early part of this week, particularly against The Pound, and yesterday’s disappointing ZEW Economic Sentiment survey results for Germany and the Euro-zone as a whole did little to provide the region with a boost. Turbulent times are ahead for the region, with IMF chief Dominique Strauss-Kahn currently behind bars at the Rikers Island facility in New York, facing charges of alleged sexual assault. His incarceration has thrown one of the world’s most powerful financial institutions into chaos, with market experts predicting that it could have larger ramifications for the European and global economy, and in turn the foreign exchange markets. Strauss-Kahn was the strongest voice behind muscular but often unpopular efforts to prevent debt defaults in Euro-zone nations, including Greece and, more recently, Portugal. The IMF’s temporary head, John Lipsky, is a highly respected former U.S. Treasury official and one-time JPMorgan Chase executive. But he’s not nearly as well-known in the political world, causing many to wonder whether the IMF will falter in making the case for widely shared contributions to financial rescue efforts.

The US Dollar weakened against most of its major counterparts during the overnight trade, but to be regaining its footing as investors scale back their appetite for yields. The dismal report for US housing starts yesterday and build permits may well have sparked a rise in risk aversion, and the rebound in the Dollar may gather pace, benefiting once more from its safe-haven status. However, the Federal Open Market Committee is scheduled to deliver its policy meeting minutes this evening. Any comments from the central bank are likely to heavily influence rate movement and we may see Chairman Ben Bernanke continue to highlight the ongoing weakness within the real economy as he aims to encourage a sustainable recovery, with chances of an interest rate-hike whilst the recovery remains frail remaining increasingly unlikely.