Daily Foreign Exchange Market Update 18/11/2011

Fri, November 18, 2011

The Pound closed out the day a touch higher against both the Euro and the US Dollar in the foreign exchange market. The GBP/EUR exchange rate which opened at 1.1679, closed out the UK business day at 1.1685, with the GBP/USD exchange rate picking up from the morning’s open at 1.5741 to trade up at 1.5785 by the market close. There was some positive data released from the UK yesterday, with Nationwide consumer confidence numbers showing a positive increase for the month of October, the figure rising from 45 to 36. Also, there was a welcome boost in retails sales figures, which rose annually from 0.3% to 0.9%, and month-on-month showed a level of 0.6% amid forecasts for a drop to -0.3%.

There are no significant data releases scheduled for the UK today, leaving the currency open to shifts in risk sentiment and news from the worlds other major economies. One thing the market will be keeping a close eye on though is a meeting today between German Chancellor Angela Merkel and British Prime Minister David Cameron. With relations between the two countries becoming seemingly strained over current economic events, PM Cameron has been taking an increasingly Euro sceptic view and called for the ECB to be used as a ‘big bazooka’ to defend the Euro by buying up bonds and becoming a ‘lender of last resort’; moves which are strongly opposed by politicians in Berlin. Chancellor Merkel is also set for a collision course with PM Cameron over proposals for a financial transaction tax to raise funds, which has been met with great trepidation and opposition by the City of London which is arguably the financial capital of the continent, as there are fears it would heavily affect both the UK’s GDP prospects and already-weak labour market.

The Euro did slip against the Pound yesterday, but showed a small gain versus the US Dollar in the currency exchange market. With no economic data of note released from the Euro-zone throughout the day, the currency remained fairly range-bound, with the EUR/USD exchange rate moving up a touch from the morning’s open at 1.3473, to trade up at 1.3508 by the close of the European trading day.

This morning has seen the release of German producer price figures, which showed a drop annually from 5.5% to 5.3%, and month-on-month from 0.3% to 0.2%. These figures may well be welcomed by the market as reduced producer prices usually indicate lower consumer prices, and with the Euro-zone economy looking increasingly weak, a drop in inflation will be beneficial to the general public.

The US Dollar fell slightly against the Pound and the Euro yesterday, as there was increased speculation that a fall-out in the Euro-zone could have potentially damaging effects on the US economy, especially given the exposure to Europe within the banking sector. With the Federal Reserve having already toned down their growth forecast in the past few weeks, indecision and political unrest within Europe seems to not benefit the US Dollar either way, despite its traditional ‘safe-haven’ status. Figures released yesterday showed that building permits increase in October, from 589,000 to 653,000, but housing starts fell over the same period from 630,000 to 628,000.

Later on today will see the release of leading indicators numbers for October, which are forecast to show a positive increase. With the index being composed of ten key indicators known to precede change in the economy, there could be a positive boost for the US Dollar with a strong upturn in the reading.

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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