Daily Foreign Exchange Market Update

Fri, August 12, 2011

The Pound made good gains against both the Euro and The US Dollar in the foreign exchange market yesterday, and has continued with some upward movement this morning. The GBP/EUR rate opened at 1.1344 yesterday morning, and rose to 1.1402 by the day’s close. The GBP/USD rate also followed an upward trend, moving from 1.6166 to 1.6226 throughout the day. There were no figures of note released from the UK yesterday, with the currency moving following weakness in Europe and the US.

There is no economic data scheduled for release from the UK today, but with some high-level data coming from the US this afternoon, there is the possibility that we will see some sharp movements in the GBP/USD rate around 13:30 this afternoon, and 14:55.

The Euro weakened against the Pound and the US dollar yesterday, following a very dovish monthly report from the European Central Bank. Following two rate-hikes already this year, it seem the bank will not be making further inroads into tightening of policy, and are also making funds available to purchase Italian and Spanish securities to try and raise capital for the struggling nations. The report also enhanced the bank’s aim to keep price-growth (inflation) close to 2.0%, to try and help support economic growth and job creation in the Euro-zone. The report stated that the bank will keep policy ‘accommodative’ to support its aims, and will ‘monitor very closely all developments with respect to upside risks to price stability’.

This morning we have already seen the release of French 2^nd quarter GDP figures, which showed that the annual growth rate in France fell from 2.2% down to 1.6%, and in the last quarter, also fell from 0.9% to 0.0%, with the single-currency weakening on the figure’s release. We have also seen Euro-zone industrial production fall annually, from 4.4% down to 2.9%.

The Dollar weakened against the Pound, but made a small gain against the Euro yesterday, with the EUR/USD rate pulling back from the morning’s open at 1.4249, to 1.4231 by the end of the day. The economic data released from the US yesterday wasn’t positive though, with the US trade balance figures showing an increase in the nation’s negative deficit, from -$50.8 billion to -$53.1 billion, showing the country’s over-reliance on imported goods, and drop in export levels.

This afternoon will see the release of some high-level market data, with advance retail sales expected to see an upturn, from last months level of 0.1%, the market forecast calling for a figure of 0.5% which could benefit the currency. The University of Michigan will also report this months confidence index levels, with the expectation fro the figure to show a drop, from 63.7 to 62.0, an indication of an increase in negative sentiment, following some poor jobs figures, and the debt-ceiling scenario that occurred earlier this month. The figure may also not be helped by the cut in the US’s credit rating, which is bound to affect consumer confidence.

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