Foreign Currency Exchange Report 10 March 2010

Unfortunately for those of you buying currency with the Pound as your base currency, you will have to sit and wait if you want to see the market back up again. With the 1.10 barrier broken again this morning it looks set to continue, so if you have a purchase to make it could be a prudent move to buy your foreign currency before we see exchange rates fall even further.

Sterling

The Sterling exchange rate suffered its biggest fall in over a week yesterday as fears over the UK's housing market, banking sector and fiscal health continue to dominate the markets. The Royal Institution of Chartered Surveyors (RICS) report that was released the previous night showed that British house prices had grown last month at their slowest rate since August and at a slower pace than analysts had expected. This was compounded yesterday by data showing the UK trade deficit had unexpectedly widened in January to its largest in 17 months despite the recent weakness in the Pound exchange rate. A normal scenario for a weak Pound would be that investors buy into it with it being cheaper, hence bringing our trade deficit down. The fact that it has gone the other way despite the weakness confirms what a sorry state we are in!!

Further Pound woes came in the form of the Fitch Rating's which said that Britain's sovereign credit profile had deteriorated, and urgency for fiscal adjustment was greatest for the UK, Spain and France among the larger AAA sovereigns.

Euro

The negative UK data has allowed the Euro exchange rate to advance against the Pound but it did drop off versus the US Dollar in European trading as investors awaited fresh details on Greece's plans to resolve the debt crisis. Traders were cautious before talks between Greek Prime Minister George Papandreou and US President Barack Obama, as the Greek leader aired concerns that speculators were undermining efforts to overcome the debt crisis. Papandreou urged the United States to crack down on currency speculators with reports that some US funds have placed big bearish bets against the Euro. Papandreou said, ‘Unprincipled speculators are making billions every day by betting on a Greek default.'

Persistent uncertainty over Greece's debt crisis will continue to remain at the forefront until investors get the specifics on how the problem will be tackled so, although its old news now for many of us, it is still very much key to any body looking to buy or sell Euro's.

US Dollar

It was a quiet day in US Dollar trading yesterday with a distinct lack of data. After last Friday's surprising US employment report, the market is perhaps sitting back and digesting the comments out from Europe, especially from Papandreou. The Dollar exchange rate did fall against the currencies of commodity-exporting nations, including Brazil and Canada as advancing stocks encouraged demand for assets that historically benefit as global growth rebounds.

As we move forward the FED are taking steps to drain emergency liquidity from markets, a sign that financial conditions are improving. The central bank has been slowly reeling in its emergency lending programs put in place during the financial crisis. This helped to keep credit flowing. At the same time, it has continued to say that it will leave interest rates at their current rate near zero as the economic recovery from the recession remains weak. Higher interest rates can boost currency exchange rates as investors transfer funds to where they can earn higher returns. Signs that the FED is readying itself for eventual policy normalization should remain beneficial for the Dollar moving forward.

Today's Data releases

Industrial and Manufacturing production for the month and year due for the UK

MBA mortgage applications from the US

The main Euro-zone data includes CPI figures from Germany and we also have ECB president Trichet speaking in Frankfurt.

Please contact Foreign Currency Exchange on +44 (0) 20 7989 0000 to discuss your currency exchange requirements.