Foreign Currency Exchange Report 09 September 2010

09 September 2010

 

Sterling

 

The Pound started and maintained its upward momentum against the big hitters for most of yesterday reaching its highest levels against the Euro in more than a week. The Pound benefited from better than expected UK Halifax house price figures which unexpectedly rose 0.2% versus a forecast of -0.5%. This news coupled with heightened concerns over Euro-zone sovereign debt quality and a seemingly predictable but upbeat UK July Industrial production figure help the Pound take centre stage.

 

The Pound did in fact advance against all 16 of its most traded partners also lifted by speculation of mergers and acquisitions within the UK as well as a notable increase of flows into the gilt markets as financial turmoil elsewhere came to its aid. Today we see the release of UK interest rates which are expected to stay at 0.5%, but clients are warned that if we see any hint of an extension to the QE program the Pound will be back on its knees again.

 

Euro

 

The Euro felt the burn again yesterday as sovereign debt worries in the region took a grip of the Euros tails as we saw it plunge significantly against both the Sterling and US Dollar. German exports fell in July for the first time in three months and German factory orders also unexpectedly fell with manufacturing activity easing in August. These figures have only helped to add evidence that Europe's work horse has fallen to a canter as the global economy dwindles.

 

Another point investors should be weary of is the fact that Greece has still not disclosed the full details of its secret financial transactions it used to conceal its debt, even four months after it was handed 110 Billion Euros. A very real worry for the price of the Euro as Greece have lied about using complex swap contracts after Euro stat told countries to report them in 2008. If the real documents show the true extent of the debt to be far greater, the trust in Greece to make its repayments will be shot along with confidence in the Euro-zone and thus the single currency will falter.

 

Comments also yesterday from ECB member Stark concerning banks in Germany didn't do the euro any favour as he stated that they are largely undercapitalised and still pose a threat to the 16 state nation.

 

Today we see German CPI figures and the ECBs monthly report.

 

US Dollar

 

The big news for the US Dollar yesterday came in the form of the Federal Reserve's Beige Book which only helped to confound an already wobbling economy. The book showed widespread signs of deceleration in the six weeks to the end of August suggesting and supporting data releases over the past few months that the recovery is losing its impetus. As a glimmer of hope the book did report a minor increase in consumer spending but also showed that the housing market and in particular home sales slowing further at the end of June.

 

The latest data from the US has been a mixed bag with some suggesting that the US will be able to stave off a dip back into recession. Others though look at the fact that the US economy grew by an annualised  1.6% between April and June which is considerably less than many of the European countries with seemingly far worse economic outlooks. Jobs data last week with private sector companies hiring an extra 67,000 did help to quell fears but investors are warned to cautious of further US Dollar exchange rate depreciation if the bad outweighs the good. Sizable data from the US comes in the form of Trade balance figures and Initial Jobless claims.

In other news, the Bank of Canada has raised its interest rates by a quarter-point to 1% which is its third rise this year, however, the bank hastened to add that its growth is still very uncertain.

 

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