Foreign Currency Exchange Report 16 September 2010

16 September 2010

 

Sterling

 

Yesterday saw Sterling touch a seven week low against the Euro and initially fall against the US Dollar as a surprise jump in unemployment fed concerns about the UK economic outlook. The August rise in the claimant count comes as bad news for the government as they were hoping to cut its welfare bill as part of its austerity drive.

 

Bank of England Governor Mervyn King said on Wednesday the central bank stood ready to act if the economic recovery turned out weaker than expected but market participants said he offered no suggestion the BOE was any closer to implementing any more economic stimulus. King said the central bank for now is more worried about the economic outlook and made no specific policy comment on inflation which held steady this week at 3.1 percent, above forecasts of 2.9 percent. His comments kept the Pound under pressure and dented any hopes of a rise in interest rates later this year.

 

We also saw average weekly earnings growth including bonuses rise by 1.5 percent in the three months to July, up from a 1.1 percent rise in the three months to June but still well below the historical average.

 

The Pound did rally across the board during the afternoon after investors shook off the bad news and focused on the increase in UK employment which saw the number of people in employment rise by a record 286,000 in the three months to July. The move could also be attributed to the intervention from the Japanese government, who it is rumoured sold Yen versus a basket of currencies in the region of $20bln.

 

Today see's the release of the BOE Inflation Survey & UK Retail Sales

 

Euro

 

For the early part of this week we have seen the Pound exchangee rate weaken significantly against the Euro. A disappointing set of UK trade figures for July weighed on the Pound and underlined fears about a sharp slowdown in the third quarter.

 

Also strong manufacturing data from China helped the Euro as there is more potential for the Euro-zone to benefit through German exports to a strong Chinese economy than for the UK and that's why Sterling has also been lagging the Euro.

 

The single currency also rose to the highest level in a month against the US Dollar after regulators gave European banks more time than expected to meet their new capital requirements. The Euro received an additional lift from a statement from the European Commission, which said that the economy in the region may grow almost twice as fast this year. But yesterday the tide turned and we saw the Euro exchange rate weaken after disappointing data from the Euro-zone.

Today see's the release of German Wholesale Price Index & the Euro Zone Trade Balance

 

US Dollar

 

The US Dollar exchange rate leapt from a 15 year low on Wednesday after Japan intervened to sell Yen for the first time in six years but analysts said the authorities could face a tough task in stemming Yen gains.

We have seen recent Dollar exchange rate strength of late on the back of modestly improved US economic data such as improved private payrolls, strong manufacturing, better retail sales and rising business inventories which suggest the US could be on the slow road to recovery.

But yesterday the Dollar exchange rate fell against most major currencies after speculation that the Federal Reserve will start a program to buy massive amounts of US debt to drive interest rates lower. If true, the move would bolster the economic recovery in the US but certainly weigh on the US Dollar.

 

In other news, former chairman of the Federal Reserve Alan Greenspan said the taxes in the US had to rise while fiscal stimulus needed to be wound down in order to reduce the US budget deficit and allow private investment to expand. Greenspan said that the chances that the US economy would slide back into recession were receding but yesterday's weak housing data was a concern.

Today see's the release of US Jobless data and US Producer Price Index

 

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