Foreign Currency Exchange Report 08 September 2010

08 September 2010

 

 

Sterling

 

Sterling continued its downward trend against the US Dollar falling below 1.53 (interbank), but regained some lost ground against the Euro moving just above the 1.20 level (interbank). With no economic data from the UK yesterday, Sterling exchange rate strength against the Euro can be attributed to Sterling being seen as a safe haven against the Euro, as concerns regarding the ability of several European countries to deal with their ever expanding debt returned to the market.

 

Today sees the release of important Industrial and Manufacturing figures for the month of July. Despite expectations for these figures to indicate improvements month on month in July, any short term Sterling exchange rate strength is likely to be short lived as evidence shows economic production in the UK is currently dropping, bringing into question the strength of the UK economic recovery, and suggesting a double dip recession is a very real possibility.

 

With growing concerns that the Bank Of England are likely to announce further quantitative easing in an attempt to stimulate the UK economy, attention now turns to Thursdays announcement from the Bank of England. Expect Sterling weakness leading up to this announcement, and significant Sterling exchange rate weakness if further quantitative easing is announced.

 

Euro

 

The Euro made steady gains against the US Dollar yesterday morning before dropping over 1% in afternoon trading.

 

Early Euro exchange rate strength was a direct result of positive comments regarding the economic outlook of the Euro-zone where despite German manufacturing orders falling -2.2% month on month in July, (much worse than the forecast of positive growth of +0.5%), the German Exporters association remained bullish in their forecasts, stating, "We see no slowing in economic growth, order book very full" and that expectations are for exports to grow more than 10% in 2010. Further bullish comments from European Union member Barroso that "EU economic growth in 2010 will be higher than forecast", provides clear evidence that the European economic recovery is gathering pace, and pushed the Sterling-Euro rate as low as 1.1954 (interbank).

 

However, Euro exchange rate strength was short lived as it seems to always be the case at present as these positive comments were almost immediately played down first by European Union member Rehn who said "Euro-zone is not out of the woods yet" and then by European Central Bank member Nowotny who emphasised the need to see more evidence to confirm that the recovery of the economy is sustainable, showing the economic outlook for the Euro-zone is as unpredictable as ever.

 

Worries concerning European banks ability to deal with their debts, (particularly Ireland, Italy and Portugal) who's central bank reports state increased borrowing from the ECB (up 0.6% in August to a record €49.1biliion) combined with Wall Street Journal reports that the recent European banks stress tests significantly understated the holdings of potentially risky government debt once again calls into question the validity of the Stress test and pushed the Euro exchange rate lower.

Weak German export figures released this morning has seen the Euro lose further ground against Sterling and the US Dollar.

 

Industrial production figures due this morning are likely to be positive, adding further support to the argument that the Euro-zone recovery is now a lot more sustainable so keep in contact with your currency broker to take advantage of any volatility at what still appears to be good levels to buy Euros.

 

US Dollar

 

The US Dollar exchange rate declined yesterday as reports that unemployment may rise to 10% as growth and economic recovery continues to stall. The lack of a robust recovery is likely to see a jobless and slow recovery which will weigh on the US Dollar, as other major trading partners continue showing good levels of job growth.

 

The US Dollar declined on the back of further drops in consumer confidence which indicates consumer confidence remains at depressed levels which will continue having a negative effect on the economic recovery and consequently any Dollar exchange rate strength.

 

Today sees the release of the important beige book report which is likely to highlight further the lack of any confidence in the economic recovery, whilst the imminent direction of the US Dollar will be heavily influenced by jobless figures released tomorrow.

 

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