Daily Foreign Exchange Market Update

Wed, January 25, 2012

The Pound finished higher against both the Euro and the US Dollar in the foreign exchange market yesterday. The GBP/EUR exchange rate picked up from 1.1957 at the morning’s open to trade up at 1.1990 by the close of the UK business day, with the GBP/USD exchange rate also advancing from 1.5553 at the day’s open to trade up at 1.5594 at the European market close. Economic data released from the UK yesterday was mixed, with figures showing that UK public sector net borrowing fell for the month of December, from £15.1billion to £10.8billion, but public finances (the amount of money financed to the UK government to enable it maintain current spending patterns) shot up from £10.6billion to £22.9billion in December.

This morning will see the release of the minutes from the Bank of England’s last policy meeting, which market participants will study for any potential insight into the central banks policy stance for the coming months, and the all important voting majorities in terms of interest rate fixing, and asset purchasing. The main market focus however is likely to be on the advanced reading of UK 4^th quarter GDP, which is expected to show a slight contraction, which if any deeper than forecast could see the Pound come under fierce pressure.

The Euro lost ground against the Pound in the currency exchange market yesterday, but closed the day out almost unchanged against the US Dollar, despite falling briefly during the day. The EUR/USD exchange rate did fall from the mornings open at 1.3006 to trade below 1.2960 during the day, but picked up back to 1.3003 by the European market close, almost exactly at open levels. Economic data released from Europe was positive overall, with German PMI manufacturing and services figures showing good gains fro the month of January. Euro-zone PMI figures for manufacturing, services, and the composite number also all showed impressive gains for the month, which could restore a small amount of positivity in the region.

Today will see German IFO numbers for business climate, current assessment, and expectations cross the wires. With the market forecast to see a small increase across the board, any drops in the figure could have a negative effect on the single-currency.

The US Dollar lost ground against the Pound yesterday, and closed out the day having lost its early gains against the Euro. There was no significant economic data released from the US yesterday, with movements based on shifts in risk sentiment, and news from the world’s other major economies.

Market participants will focus on this evenings Federal Reserve FOMC interest rate decision for key direction on the US Dollar. Whilst it is almost certain that there will be no change to the base rate, the Federal reserve almost always releases an accompanying statement with its decision, and it is this that will be studied for any indication of future policy, and how the central bank views the current domestic, and world economic stage.

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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