Foreign Currency Exchange Report 3 July 2009

Is Sterling beginning to tread water?

With growing doubts over how sustainable current levels of UK debt are over the longer term, as well as fears that solid economic data primarily Gross Domestic Product (GDP) numbers - might not match expectations, this could weigh on the Pound exchange rate by the end of the year. Fear is rife that there could be big risks further down the line if the substantial stimulus being pumped into the economy dries up. While the Pound may well be supported in the near term by risk appetite, it could again be at risk once this liquidity driven recovery runs out of steam, as investors suddenly feel exposed and vulnerable.

Sterling

Further evidence that Britain's economy is far from near a recovery was evident when a UK construction survey was released yesterday. An index based on a poll of purchasing managers at building companies fell to 44.5 in June, from 45.9 in May, Markit Economics and the London-based Chartered Institute of Purchasing and Supply said. "Whilst a return to growth does seem plausible and policy is gaining traction in the economy, the idea that we will return to rapid growth that will be sustained over several years seems pretty unlikely," David Miles a BoE policy maker told Parliament's Treasury Committee in London. The U.K. economy contracted 2.4 percent in the first quarter, the most in five decades.

Euro

Yesterday, The European Central Bank left its Interest Rates unchanged at a record low of 1.0 percent, as expected. The program to buy covered bonds will go ahead as planned, president Jean-Claude Trichet said. With the data in the market improving there is no compelling reason to do more right now." The Euro exchange rate hit session lows after ECB President Jean-Claude Trichet started talking about the risks facing the Euro currency zone. "Economic activity over the remainder of this year is expected to remain weak, but should decline less strongly than was the case in the first quarter of 2009," Trichet said. "Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected by mid 2010." This big ship (Eurozone) seems to have steadied in choppy waters, don't expect the currency to weaken off too much more in the near term, now is a good opportunity to both buy and sell Euros.

US Dollar

The number of jobs lost in the US last month came in at 467,000, which was much more than had been expected. The jobless rate rose to 9.5% in June, from 9.4% in May, as the US economy continues to struggle. Since the start of the recession in December 2007, the number of jobless people has risen by 7.2 million, the Department of Labor said. The unemployment rate was slightly lower than had been expected, but was still the highest since August 1983. With the US market closed today for the Independence Day holiday and with investors mostly having sold their positions, now maybe a good time today to buy Dollars before an expected volatile days trading on Monday.

Currency Market Data out Today

Today we will see Eurozone service sector surveys for June and retails sales for May which are unlikely to cheer investors either, with both sets of data expected to show a marked deterioration from the previous month.

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