Foreign Currency Exchange Report 06 September 2010

06 September 2010

 

Sterling

 

On Friday the Pound exchange rate suffered in early trading after the latest UK services data showed a sharp slowdown in Britain's service sector which makes up two thirds of the economy. The news triggered fresh fears of a double dip recession and the index has now dropped for three consecutive months with the road ahead looking far from stable. It confirms a marked slowdown in output throughout the UK economy putting further pressure on the future of the Pound. With the government's spending cuts and tax hikes yet to really bite, the prospects for second half economic growth are not shaping up too strongly for the UK.

 

The headline services PMI index dropped to 51.3 in August from July's 53.1, a much sharper decline than the 52.9 forecast. The drop takes the index close to the 50 level, below which would mark contraction instead of growth. The weak number is of particular concern because of the importance of the services sector to the UK economy and the fact that it follows recent soft data on the manufacturing, housing and construction sectors.

 

Pound traders will now shift their focus to the Bank of England interest rate decision, which is expected to be released this week. 

Today see's the release of BRC August Retail Sales Monitor later tonight.

 

Euro

 

The single currency enjoyed a buoyant end to last week thanks to solid results from Spanish and French bond auctions on Thursday boosted risk appetite and supported to Euro. The Euro exchange rate also strengthened against the Greenback on Friday after a report showing EU retail sales report as figures rose to a greater than expected 1.1 percent in July from a year ago. The Euro also recovered well against the Swiss Franc after it hovered within range of a record peak.

 

Today see's the release of Euro-zone trade balance and Sentix Investor Confidence

 

US Dollar

 

The US Dollar struggled and traded in a tight range early on Friday as investors took the cautious approach ahead of the US employment data with many investors wary of taking on any big positions. The fear from investors reflected subdued risk appetite due to worries about a slowdown in the US and a stuttering global recovery, this saw the Yen locked near a 15 year high against the Dollar.

 

However, with gold returning near to this year's all time highs against the Dollar, the Euro and the Pound last week, it is clear that investors remain to be unconvinced about an economic recovery and continue to hedge their exposure to risky assets. Please stay in touch with your currency broker because when we see risk appetite come back, both the Dollar and the Yen exchange rates will be weak. But because the Dollar has low interest rates despite the US twin deficits, its weakness will stand out even against the Yen.

 

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