Foreign Currency Exchange Report 1 July 2009

Sterling

Sterling looked good early yesterday, but by the close of play the currency market almost looked unchanged from Monday.

Sterling had been the standout currency after initially surging to new high exchange rates early on against the U.S. Dollar (the world's most traded currency), with the mid-market exchange rate hitting the 1.67's for the first time this year, following much better than expected Nationwide Housing Price Index data and the worst GDP figures for 50 years. However, it was all downhill from there after the current account and total business investments largely disappointed.

I think more confidence is being gained in Sterling, but it has not turned the corner completely and the run seen over the last month seems to have ground to a halt. Evidence of this is that data is not consistently better than expected. So unless you have got a significant amount of time to move your Sterling into whatever currency you need, be prepared for downturn and weakness that could cost you.

US Dollar

As they are the biggest currency pairing, it is important to note that the Dollar exchange rate rose versus the Euro yesterday amid renewed risk aversion, after a report showed an unexpected drop in U.S. consumer confidence in June. This weak confidence report sent U.S. stocks lower and put an end to an early sell-off of the Greenback. Despite currency gains versus the Euro, the Dollar is still on track for its first quarterly exchange rate decline against the single currency since the first quarter of 2008.

Myself and analysts alike are still not sure where to call the USD over the next month-or-so, as a sudden rate hike by the Fed could really give it some strength, although it seems unlikely. I think the US Dollar has been oversold and its weakness is more than likely to be short lived. Investors have sold U.S. Dollars recently as stock markets and oil prices have risen on an upbeat view for prospects of a global economic recovery and hurt demand for the currency as a safe haven.

Euro

In the Eurozone, data was on the stronger side yesterday after CPI estimates and German unemployment came in slightly better than anticipated. However, inflation estimates did show the first annual decline since they began. Nevertheless, the European currency did well and traded above 1.41 (IB) against USD, and also bounced back to good exchange rate levels against Sterling.

So all in all another unpredictable day which gave anyone either buying or selling Euros no clearer idea of when to trade.

Long term I can only see the Euro exchange rate weakening against Sterling, but that is not helpful if you only have a few months to play with. If buying, maybe it is best to take advantage of recent gains or at least cover yourself with an order to buy if the market drops again.

If selling, I wouldn't risk waiting for any small exchange rate gains, they are highly unlikely.

Other currencies

The Australian Dollar exchange rate is still surprisingly strong at the moment, along with the New Zealand Dollar against Sterling, so great for selling.

News Today

9:30 Eurozone and UK PMI Manufacturing.

12:00 U.S. MBA Mortgage Applications.

15:00 U.S. Pending Home Sales.

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