Foreign Currency Exchange Report 14 September 2010

14 September 2010

 

Sterling

 

Sterling's gains were slowed at the start of the week proving investor sentiment alone is unable to sustain the Pound's bullish movement. Reports released have RICS House Price Balance plunged to its lowest level in 15 months, offsetting the modest increase in the Nationwide sentiment index. Wednesday's CPI data is far more important and if its headline reading slips below 3.0 percent, there may be no argument for rate increases.

 

The Pound has come under pressure after weaker than expected producer prices data released on Friday adding further likelihood that the BOE will hold off from raising interest rates until well into 2011.

In trading this morning, Sterling has edged lower tracking the Euro's gains against the US Dollar.

It is expected to be a busy week for the Pound so keep in touch with your currency broker. It has been announced this morning that UK Inflation has stayed at 3.1% in August, remaining above the Bank of England's 3.0% target.

 

Spending confidence rose during August, rising by four points to 98 and reversing the fall seen in July. In keeping with recent house price figures, consumers have expressed increased pessimism towards the housing market. A Nationwide report said that consumers now expect the value of their home to decrease 0.1 per cent over the next six months.

 

US Dollar

 

The US Dollar exchange rate slumped to a two month low against the Euro yesterday as stock markets pushed ahead. Reports showed an ease in fears of slowing global economic growth causing increased interest in riskier, higher-yielding currencies. This was also reflected in stronger than expected Chinese data and an upgrade to EU growth.

The currency markets also reacted positively to the Basle III's new reserve limit set at 7%. This announcement allows banks not already in compliance with the reserve limit plenty of time to meet the new capital requirements.

Reports at the weekend showed Chinese industrial production rose 13.9% year on year in August, helping to cut through recent concern about a global double-dip recession.

Analysts have said the US economy was lagging behind Europe, largely because of France and Germany's strong performance and exporting capabilities towards Asia. The upcoming mid-term elections are expected to create volatility in the market with investors looking to the Federal Reserve for direction. However, the FED appears to be showing indecision regarding next steps and it is expected to take a few more months until this is resolved.

 

In early trading, the Greenback has fallen to a nine-month low against the Swiss Franc as market players scaled back investments in risk currencies and began pouring funds into low-yielding currencies such as the Japanese Yen and the Swiss Franc. This is the lowest level since December 2009.

 

Euro

 

European Union forecast released yesterday expect Euro-zone growth of up to 1.7 percent across the core before the end of the year. "Based on an update for the seven largest EU member states focusing on growth and inflation this year, real Gross Domestic Product growth is now projected at 1.8 percent in the EU and 1.7 percent in the euro area in 2010," the report said. Previous forecasts were set at 0.9 percent growth in 2010 and 1.0 percent for the 27 EU members as a whole.

 

European governments are said to be encouraged of the signs of a revival in domestic demand, including private consumption, particularly in Germany. Traders were warned, however, that amid continued high uncertainty, risks to the EU growth outlook remain elevated. Europe's economy outpaced the United States and Japan between April and June, pulled up by Germany's best quarterly performance since reunification in 1990, with growth of 2.2 percent.

 

Please contact Foreign Currency Exchange on +44 (0) 20 7989 0000 to discuss your currency exchange requirements.