Daily Foreign Exchange Market Update 31/10/2011

Mon, October 31, 2011

The Pound finished last week higher against the US Dollar, but lower against the Euro in the foreign exchange market. The GBP/USD exchange rate picked up across the course of the week; from the week’s open at 1.5952 to trade up at 1.6126 by the close of the UK business day on Friday. The GBP/EUR exchange rate however; fell throughout the week, down from Monday’s open at 1.1485 to trade at 1.1393 by the end of the week. The Pound was not helped by disappointing economic data, the main declines coming from BBA loans for house purchase figures which showed a drop from 35,069 to 33,130 for the month, and also GfK consumer confidence figures for the UK showing a fall in positive sentiment from -30 to -32 for the month of October.

The week ahead will mostly focus on Wednesday’s release of 3rd quarter GDP figures from the UK. The expectation is to see an increase in quarterly growth; but a drop in annual economic growth, which could put some more pressure on the currency. Tuesday’s Nationwide house prices numbers will also give the market some insight into the health of the UK’s housing market, which has been increasingly weak over the past few months.

The Euro gained well against the US Dollar and the Pound in the currency exchange market last week. The new that EU leaders had come to a proposal for debt reduction, bank refinancing, and the Greek bailout did give some hope to the market, and enabled the EUR/USD to pick up from 1.3839 at Monday’s open; to trade up at 1.4152 by the close of play on Friday. The European Central Bank (ECB) released its bank lending survey during the week; showing that demand for year-long loans from the ECB was weaker than analyst’s initially forecast.  The central bank announced it will lend banks 56.9 billion Euros for 12 months; less than the median forecast of 70 billion Euros in a Bloomberg News survey, and will also lend 44.6 billion Euros for three months tomorrow, when 85 billion Euros in three-month loans mature. The 3-month figure is also less than the 50 billion Euros predicted in the Bloomberg survey. The Euro was boosted with the announcement that EU leaders have agreed to extend the EFSF fund to around €1 trillion, and will force banks across the region to increase their capital reserves.  In regards to Greece specifically; the nation will have to reduce its public debt to 120% of GDP by 2020, with private investors agreeing to a voluntary bond swap that will wipe away 50% of the country’s obligations.

This week contains a fair amount of high-level market data from the Euro-zone; but one of the highlights is sure to be Tuesday’s release of German and Euro-zone PMI manufacturing figures for October. With Germany regarded as Europe’s strongest economy, it is essential that the nation maintains strength in industry, and any drops in the manufacturing numbers could see the Euro come under pressure. The German labour market will also come under close scrutiny on Wednesday with the release of the latest unemployment rate numbers; with the market forecast for a drop in the number of newly unemployed for the month of October. The ECB’s rate decision on Thursday is probably more anticipated as the first policy meeting without former President Jean-Claude Trichet as opposed to there being any shock announcements, but even so, markets will watch closely for any shifts in bond-buying or rhetoric from the central bank in the post-decision press-conference.

The US Dollar lost ground across the board last week, the currency losing some of its risk-averse gains form the past couple of weeks. With solution in Europe seemingly drawing closer and some poor market data from the nation; the currency slipped against both the Euro and the pound. Consumer confidence and durable goods orders saw sharp falls last week, from 46.4 to 39.8, and from -0.1% to 0.8% respectively. This really did nothing to help the Dollar, and despite the late-week rise in Friday’s University of Michigan confidence survey, from 57.5 to 60.9, closed out lower across the board.

The US economic docket this week will see some big data events. Aside from Tuesday’s construction spending and ISM manufacturing and prices paid figures, Wednesday’s Federal Reserve rate decision will be watched closely by the market. While a change in the base rate is unlikely, the post-decision press conference from Chairman Bernanke will give insight into the central banks policy stance, and expectations for economic growth and price pressures in the coming months. Friday’s non-farm payrolls are more than likely to spring a surprise, as per usual. The expectation is to see around 95,000 jobs added, but with the chance of a revision to last months numbers, there could well be a shortfall here.

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

Data Releases