Daily Foreign Exchange Market Update

Thu, June 30, 2011

The Pound managed to regain some of its losses against the Euro and The US Dollar in the foreign exchange market yesterday. The GBP/EUR rate rose from 1.1099 in the morning, to trade above 1.1135 by the end of the day, welcome news for people buying Euros. The GBP/USD also moved up over the course of the day, from the morning’s open of 1.5978 to 1.6067 in late afternoon. There wasn’t a great deal of economic data to support the Pound’s rise; with the only real figure of note being a slight rise in mortgage approvals, from 45,400 to 45,900 for the month of May.

Today has already seen the release of Nationwide house price figures for June which showed a slight fall in month-on-month levels, from a 0.3% rise to 0.0% through June. The annual figure though, did show an increase from -1.2% to -1.1%, which beat market expectations for a further fall down to -1.3%. This is positive news for the UK housing market though, despite the pick-up in the annual rate only being small.

The Euro fell against the Pound, but gained against the US Dollar throughout Wednesday. The EUR/USD rate rose across the day, from 1.4394 to 1.4426 by the close of the UK business day. The Euro was helped by a rise in Euro-zone consumer confidence; the figure reporting an increase from the previous months level of -10.0 to -9.8, suggesting that consumers are starting to develop a more positive sentiment towards economic conditions across the Euro-zone. The market was also buoyed by the news that the Greek parliament successfully voted to pass medium-term austerity measures, which will give them access to further funding from the IMF and the EU to ensure the country does not default on its debt. However, this was just an initial vote, and will go before law-makers again.

This morning, the European economic docket has already reported a drop in German monthly retail sales, from 0.0% down to -2.8%, with the annual rate also falling drastically from 3.7% to 2.2%. This is not good news for Europe as it shows that consumers are spending less money in the retail sector, which is detrimental to economic growth. Figures for German unemployment showed that the overall unemployment rate held steady at 7.0%, but had little effect on the market due to the fact that analysts had already very accurately predicted this level. Later on today we will see Euro-zone CPI figures released, and the market will watch closely, as any drop in growth could prove to be stumbling block for the ECB, as they seem intent to press on with a rate hike at the next meeting. A drop in the growth rate will show that inflation is falling of its own accords and does not necessarily need intervention from the ECB.

The Dollar lost ground against the Euro and The Pound yesterday, good news for UK consumers buying Dollars. The currency exchange market saw little news to support the dollar’s slide though, with pending home sales reporting an impressive increase; but a public conference by US President Barrack Obama in which he called for the IMF to increase the US’s debt ceiling did send shockwaves through the market, as he indicated the possibility of a failure to increase borrowing could result in a default by the US. Ratings Agency Standard and Poors confirmed to Reuters news agency that they would cut the US’s credit rating should it fail meet a $30 billion debt repayment on August 4^th.

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