Foreign Currency Exchange Report 13 September 2010

13 September 2010

 

Sterling

 

Sterling experienced a relatively flat day on Friday, remaining steady against the US Dollar whilst slipping slightly against the Euro.

 

The only economic data of any significance released on Friday came in the form of Producer Price Index output Core figures which came in at 4.6%, in line with expectation and therefore having minimal impact on the direction of Sterling.

 

Sterling did manage to remain quite steady against the US Dollar where any short term downward pressure on Sterling was negated by talk that a large Pharmaceutical company needing to buy cable for dividend payment purposes, keeping Sterling well supported. 

 

Already this morning Sterling has weakened by over 60 points on growing concerns that crippling industry wide strikes are imminent in the face of government cuts. Any such strikes will be extremely negative for what is already a struggling economy, and this will surely weigh on Sterling going forward, therefore keep in contact with your currency broker to take advantage of current high rates because mass strikes could see Sterling fall across the board.

 

Today sees the release of important mortgage approvals for the month of August. With concerns growing regarding the drop of in bank lending a negative reading could add to calls for a further £25billion of quantitative easing to help stimulate the economy, which will potentially weigh heavily on the Pound.

 

Euro

 

The Euro exchange rate made slight gains against the US Dollar on Friday whilst reclaiming some of the losses seen during Thursday night trading against Sterling.

 

Early Euro exchange rate strength was a result of positive economic data from France, Italy and Portugal. The Euro strengthened on the back of better than expected French Industry output figures for the month of July  coming in at +0.9% against expectations of +0.7%, whilst manufacturing figures also surprised to the upside.

 

Elsewhere Italian GDP was revised up both quarter on quarter and year on year, whilst the Portuguese finance minister added to the Euro exchange rate strength by saying he was confident of cutting fiscal deficit to 7.3% of GDP (Gross Domestic Production) in 2010 and as low as 2.8%  of GDP in 2012.

 

However, any Euro strength was negated firstly by the Greek Finance minister statement that Greece has so far failed to bring the state budget deficit down by the 39.5% target. The Euro was then further hit by comments from European central bank member Bini Smaghi that the "Issue of debt sustainability in several industrialised countries is looming". This shows that debt concerns that weighed heavily on the Euro until recent Bank Stress tests are once more becoming a real concern and debt could weigh significantly on the Euro going forward.

 

Today sees the release of important Industrial production figures where any negative reading is likely to weigh heavily on the single currency. Attention will focus on tomorrow's economic data where Germanys ZEW report is likely to fall from previous reading as confidence in the recovery shows signs of dropping. The Euro has shown signs of weakness recently so keep in contact with you currency broker to take advantage of what is likely to be a volatile week ahead.

 

US Dollar

 

The US Dollar exchange rate improved against the Japanese Yen whilst remaining relatively steady against most of its trading partners on Friday, as investor appetite for the Greenback improved as a result of rising treasury yields, (improvement in the difference between the US and Japanese interest rates), making the US Dollar a much more attractive investment.

 

The US Dollar did show some signs of vulnerability as Wholesale Inventories for the month of July came in much higher than expected at 1.3% against expectations of 0.4% again illustrating the weakness of the US economic recovery as unsold goods pile up whilst consumers still lack the confidence to part with their money.

 

Today sees the release of the US monthly budget statement for August, after which attention will focus on the rest of the week's significant economic data particularly Tuesdays Retail Sales figures. After Friday's wholesale inventories figures for July disappointed, expectations are for a drop in retail sale figures.

 

Although weak retail sales figures would add to the bleak picture of the US economic recovery, expect the US Dollar exchange rate to strengthen on this as investors return to the US Dollar for its safe haven standing in the face of stalling economic recovery.

 

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