Foreign Currency Exchange Report 13 August 2010

13 August 2010

 

Sterling

 

The Pound was relatively range bound against the Euro yesterday, losing ground in late trading as little or no data helped to stagnate the currency.  The only information of significance came in the form of UK property repossessions and number of mortgage arrears which both fell in the second quarter with the Council of Mortgage lenders also down grading its forecasts in 2010.

 

The view is that mortgage difficulties have so far been contained but borrowers are feeling vulnerable as the prospect of higher interest rates continue to hit headlines coupled with the reduction of government support for mortgage payments and rescue schemes.

 

The Pound was seen to perform badly against the US Dollar as it saw a renewed bought of risk appetite with Wednesdays FED downgrade of global growth. Couple this with Mervyn King's comments on Wednesday of a choppy recovery for economic growth and the possibility of an extended period of low interest rates, the Pound exchange rate is fighting and uphill battle and will only be boosted by events abroad.

 

Euro

 

The Euro suffered at the hands of poor data again yesterday as we saw the release of Euro-zone Industrial Production figures which fell unexpectedly in June, increasing concerns over the stability of the economic recovery.  Factory output dropped 0.1% versus expectations of a 0.6% jump and this bad news was reinforced by an upward revision of the May figure, due to seasonally adjusted data from the European Commission.

 

Spain's fragility came to the forefront of investors concerns yesterday as its PM tried to convince investors that Spain could avoid the fate of Greece.  The PM is presently trying to push through the most severe auasterity measures in 30 years so his popularity is falling and along with the relative strength of the Euro exchange rate.

 

With Euro-zone quarterly domestic product figures realised today we could well see some further weakness from the Euro. Forecast is, however, looking for a quarter on quarter rise of 0.5% to 1% driven by German growth.  The Euro-zone is, however, projected to produce further weak data as the core states have performed usually poorly against the peripheral economies now beleaguered with fiscal problems.

 

US Dollar

 

The US Dollar was seen to back an aggressive move against both the Euro and Pound yesterday as risk appetite took hold once more. Wavering economic growth in the US and globally has seen both the Yen and US Dollar's exchange rate strength pick up on the back of frantic buying.  The EUR/USD pushed below the 1.28 (interbank) and the GBP/USD broke below 1.56 (interbank).

 

The US also reported lower than expected jobless claims data as it was seen to have risen to a four month high but the data had little or no effect on the US Dollar value as it was bolstered by our old hungry friend risk. Watch out today as we see US consumer Price and Retails sales which will again give a good gauge of the state of the public finances and will help to fuel those sceptics who see the US on the verge of a dip back into recession.

 

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