Foreign Currency Exchange Report 12 August 2010

12 August 2010

 

Sterling

 

It was a mixed day's trading on Wednesday as the Pound performed poorly against the US Dollar but posted healthy gains against the Euro.  The big news of the day was news that the Bank of England has cut their 2011 growth forecast from 3.6 to 3.0 percent and comments from BOE Governor King cited weak consumer and business confidence as reasons for the slowdown in growth, saying we are certainly concerned about the fact that credit conditions have not eased as quickly as we had expected.  It was also announced that whilst inflation remains well above the 2% target, the bank believes that targeting increasing prices through increased interest rates would prove costly.  Many analysts are predicting the rate to remain at 0.5% well into next year to help the economy through this sluggish period.  In other news employment in the UK remains mixed with the claimant count (number of people on jobseekers allowance) falling less than expected but the number of people in work between April and June rising by 194,000 people which is the biggest monthly improvement since 1989.

 

There are no other major economic announcements in the UK this week so the Pound's performance will be dictated by the strength of its trading partners. Going on its strength this morning, this could see the Sterling exchange rate weaken off.

 

Euro

 

The return of sovereign debt worries led to a major sell-off in the single currency on Wednesday as the Euro exchange rate suffered the biggest single day loss (against the Dollar) of any currency since January 5th 2009. Moving forward there is a real risk that this trend will continue so those clients of FC Exchange who have Euros to buy or sell should get in touch with their currency brokers as soon as possible to ensure opportunities are not missed and losses are limited.

 

In this morning's trading, the Euro has managed to pair some of yesterday's losses ahead of the announcement of the ECB monthly bulletin and Euro-zone industrial production figures.

 

US Dollar

 

Despite hitting a 15-year low against the Japanese Yen yesterday, the US Dollar exchange rate rallied strongly against most of its counterparts as world stocks fell, prompting investors to sell perceived riskier currencies, in a bout of risk aversion.  Data revealing a widening trade deficit in the US added to concerns about the economy and what is bad for the US, the world's largest economy, is bad for the whole world.  Moving forward, if stocks manage to hold their ground and pair some of their losses then the US Dollar exchange rate will start to weaken off.  However, there are still concerns about Chinese growth and there is a risk that its current strength could be compounded.

 

With no major economic announcements due out in the US for the rest of the week, sentiment will direct the Greenback's position and in early trading it has surrendered ground.

 

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