Daily Foreign Exchange Market Update

Thu, May 17, 2012

The Pound reversed 3 days of gains against the Euro, by closing out the day lower against the single-currency on Wednesday; and also falling versus the US Dollar in the foreign exchange market. The GBPEUR exchange rate which opened at 1.2555, dropped rapidly mid-morning and failed to recover ending the European market session down at 1.2512. The GBPUSD exchange rate also fell through the morning, coinciding with Bank of England’s latest inflation report; with the rate at the morning’s open of 1.5937 falling, to close out the day lower at 1.5913. There was positive news released early on from the UK; focusing on the labour market; with the jobless claims change for April reporting a fall of 13,700 against a forecast of a gain of 5,000, with the claimant count rate falling to 4.9% overall, down from 5.0%. The most key indicator of the health of the UK’s labour market however, is the ILO unemployment rate – and this figure showed that for the 3 months to March, unemployment fell from 8.3% to 8.2%, amid expectations for an increase to 8.4%. This was tempered though, with the UK’s central bank slashing their growth forecasts for the year ahead, from 1.2% down to 0.8%, and perhaps most worryingly the MPC conveyed their view that ‘’the substantial challenges within the euro area will lead to significant economic and financial disruption continues to pose the greatest threat to the UK recovery’’.

There is no significant economic data scheduled for release from the UK today, leaving the currency open to shifts in risk sentiment, and news from the worlds other major economies.

The Euro did manage to claw back some ground in the currency market yesterday, with the EURUSD exchange rate actually rising across the course of the day, from 1.2692, to trade up at 1.2717 by the close of the European market session. The key data release of the day was that of Euro-zone CPI (inflation) which showed that price growth held annually at 1.6%, but fell month-on-month from 1.3% down to 0.5%, which will be welcomed by consumers across the Euro-zone, who will be hoping that this decline is passed on through retail prices.

This morning has already seen the release of final readings of 1^st quarter Spanish GDP numbers, which showed that the economy contracted by -0.4% annually, and quarterly at -0.3% - further reinforcing the fragile state that the country is in, with unemployment at a level of almost 1 in 4. There has been a small step forward taken by Greece, with high-court judge Panagiotis Pikramenos being appointed caretaker Prime Minister before the Greek public return to the polls again on June 17^th.

The US Dollar has seemingly benefitted once more from increased risk sentiment towards Europe, and gained against the Pound throughout Wednesday, but did lose some ground versus the Euro, despite a number of previous days gains. There was mixed news form the US yesterday, with building permits for April showing a sharp drop from 769,000 down to 715,000, but with housing starts increasing from 699,000 to 717,000 for the same period. Industrial production for the month of April rocketed from -0.6% (revised) to +1.1%, which is positive news for the economy overall.

Today’s focus for the US economic docket will more than likely be on the latest Philadelphia Fed survey. The results will provide a small amount of direction to the currency, with it being regarded as a timely indicator of the health of the manufacturing sector, and a good indicator of the market-moving ISM manufacturing numbers.

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

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