Foreign Currency Exchange Report 06 August 2010

06 August 2010

 

Sterling

 

Sterling remained steady against the Euro and US Dollar yesterday as the Bank of England's MPC left interest rates on hold at 0.5% simultaneously leaving the asset purchase programme at £200billion both of which were in line with market expectations.

 

The ongoing concern for Sterling is that if economic recovery continues then the risk of rising inflation is a real threat to the UK economy. However, at present it seems that the MPC are more fearful of deflation than the risk of inflation indicating interest rates in the UK will remain at record lows for the foreseeable future which could mean the Sterling exchange rate will drop as the year progresses, especially if there are suggestions of interest rate hikes in Europe.

 

With GDP estimates due from the UK this morning, Sterling could experience some high volatility dependent of this representation of the UK economic health.

 

Euro

 

The single currency experienced a mixed day reclaiming gains against the US Dollar after early price action looked likely to prove claims that the recent rally against the US Dollar was running out of steam.

 

The Euro was not helped by early rumours that oil giants Shell were considering a takeover of Canadian Oil/Gas Company EnCana at an estimated price of Canadian $23billion. Such a takeover would see massive flows out of Euros from the Dutch based oil giants to finance such a move and this forced Euro/US Dollar to a low of 1.3120 from highs of 1.3224 (interbank). Loses from Shells takeover speculation was halted by manufacturing figures from Germany for the month of June coming in much higher than expected at a +1.5% increase at +3.2% suggesting the European economic recovery is finally gathering pace after months of depressed growth.

 

Euro loses were soon completely reversed. The European Central Bank left interest rates on hold as anticipated at 1% but the accompanying statement was far more bullish than expected, with ECB president Jean Claude Trichet stating the Euro economy is strengthening faster than forecast and that the third quarter was looking better than expected so far.  Further comments released from the ECB added further to Euros positive sentiment with officials finally adding support to the besieged Greek economy by stating that Greece has made substantial progress in restoring soundness of financial situation.

 

This morning sees the release of German Industrial production figures which are expected to come in below last month's reading of 2.6% with expectations for a monthly reading for June of 0.5%, anything below this figure is likely to lead to short term Euro exchange rate weakness.

 

US Dollar

 

The US Dollar continued reclaiming some  lost ground but failed to hold on to early gains against the Euro, as concerns grow that even further assistance from the Federal reserve will be required to kick start the stalling economic recovery.

 

The Greenback was hit hard yesterday by US weekly jobless claims rising sharply against expectations, rising 19,000 and leading to bets that the all important non-farm payroll figure released today could be more negative than originally expected with some experts now estimating that a further loss of up to 65,000 jobs will be announced in this sector. This combined with falling US stocks and yields weighed heavily on the US Dollar.

 

Today sees the release of all important Non farm payroll figures which if as bad as expected is likely to see the US Dollar exchange rate weaken further. 

 

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