Daily Foreign Exchange Market Update

Wed, June 22, 2011

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.

Updated: The voting numbers released at 9:30 showed that the vote to keep the the base rate unchanged was 7-2, and to keep the asset purchase target on hold was 8-1.

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.

Data Releases