Daily Foreign Exchange Market Update 21/11/2011

Mon, November 21, 2011

The Pound finished last week a touch higher against the Euro, but decidedly lower against the US Dollar in the foreign exchange market. The GBP/EUR exchange rate opened the week at 1.1648, and despite breaking through 1.1700 a number of times; ended the week at 1.1679. The GBP/USD exchange rate though fell steadily throughout the week, from Monday’s open at 1.5989 to trade at 1.5781 by Friday’s close. There was some welcome news in terms of inflation from the UK last week, with the headline CPI rate falling annually from 5.2% to 5.0%, and month-on-month from 0.6% to 0.1%. The core inflation rate though, rose annually from 3.3% to 3.4%, which could weigh on policymakers at the Bank of England. Jobless claims for the month of October fell from 13,400 to 5,300, with the claimant count rate holding at 5.0%. The ILO unemployment rate for the 3 months to September rose though, to 8.3%, up from 8.1%. Also crossing the wires was the latest inflation report from the Bank of England; the key highlights being the central bank cutting its growth forecast for 2012, indicating that growth is likely to be as low as 1%. In terms of price-growth, the bank expects inflation to carry on falling throughout the year. Towards the end of the week there was some positive data released from the UK, 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%.

The week ahead will see UK government spending come under close scrutiny with the release of public finance figures along with the latest public sector net borrowing numbers on Tuesday. The expectation is to see the borrowing figure drop; which will be key to a positive market reaction in regards to the nation reducing its debt levels. Wednesday will see the release of the Bank of England’s minutes form its last policy meeting. Whilst there was no change to either the base interest rate or the asset purchasing target at the last meeting, market participants will be eager to gauge some insight into expectations for inflation and growth over the coming months, and if the current debt situation in Europe is changing the view of policymakers. Thursday will turn to growth with the release of 3^rd quarter GDP figures, with the market expectation to see quarterly and annual growth at around 0.5%.

The Euro ended the week lower against both the Pound and the US Dollar in the currency exchange market. The EUR/USD exchange rate fell from 1.3725 on Monday’s open to 1.3510 by the close of the UK business day on Friday. The currency was not helped by disappointing figures released, with Euro-zone industrial production falling heavily, from 6.0% to 2.2% annually, and from 1.4% to -2.0% month-on-month. There was also further disappointment with the release of German 3rd quarter GDP; which showed an annual slowdown from 3.0% to 2.5% (n.s.a figure) and from 2.9% to 2.6% (w.d.a figure), but quarterly there was a small improvement in growth, from 0.3% to 0.5%. Euro-zone GDP fell in the 3rd quarter from 1.6% to 1.4% annually, but held at 0.2% quarterly. Euro-zone and German ZEW economic sentiment numbers were hugely disappointing, both showing sharp drops for the month of November, from -51.2 to -59.1, and from -48.3 to -55.2 respectively. Euro-zone CPI (inflation) figures showed that inflation held steady at 3.0% annually, with core inflation holding at 1.6%, but price-growth fell month-on-month from 0.8% to 0.3%; directly in line with market forecasts. German producer price figures showed a drop annually from 5.5% to 5.3%, and month-on-month from 0.3% to 0.2%.

This week will be heavily focused on the German economy as well as the Euro-zone as a whole; with the release of German PMI manufacturing and services on Wednesday, IFO business climate, current assessment, and expectations survey results on Thursday, along with the final reading of 3^rd quarter GDP. Euro-zone figures will comprise of consumer confidence numbers on Tuesday, which are expected to show a decline; and PMI manufacturing, services, and the composite figure on Wednesday, all of which are expected to show declines, so in theory could force the Euro lower.  

The US Dollar gained well against both the Euro and the Pound last week, a possible benefit of the currency as a ‘safe-haven’ in times of market turbulence.  The currency showed gains despite disappointing economic data that showed advance retail sales falling for the month of October, from 1.1% to 0.5%. There was some welcome news for consumers in the US, with CPI (inflation) figures showing that price growth fell annually from 3.9% to 3.5% and from 0.3% to -0.08% month-on-month. Industrial production figures also showed a positive turn, with the figure rising from -0.1% to 0.7% for the month of October. Figures released last week also showed that building permits increased in October, from 589,000 to 653,000, but housing starts fell over the same period from 630,000 to 628,000.

Today will kick-off the US’s economic docket for the week with existing home sales figures as well as the latest Chicago Fed national activity index. Tuesday will see the US release its 3^rd quarter GDP results, as well as the Federal Reserve releasing the minutes from their last policy meeting. As with Wednesday’s Bank of England meeting minutes release, market participants will eager to gauge some insight into expectations for inflation and growth over the coming months, and if the current debt situation in Europe is changing the view of policymakers. The week will round off high-level data for the US on Wednesday with the release of durable goods orders, which are expected to show a sharp increase for the month of October, and also the university of Michigan confidence index which is also forecast to rise.

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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