Foreign Currency Exchange Report 11 March 2010

US Dollar

The market was not overly active yesterday as US stocks rose ending a global slide. The US Dollar exchange rate made small gains amid further speculation that an improved American economy will justify a year long rally in equities. On the other hand, the price of oil fell forcing a retreat in commodities.

A good sign of growth was seen after wholesale inventories fell unexpectedly in January and sales hit their highest in more than a year. Other technical news and influences on the market included Standard & Poor's 500 Index climbing 0.2 % to a seven-week high on the anniversary of its 12-year low in 2009. Also the US Dollar Index gained 0.2 % after climbing as much as 0.5 %, and crude slid 0.5% from an eight-week high, as the US Dollar exchange rate weakened from the highest levels seen.

Be weary of further US Dollar currency strength over the next couple of days, particularly against Sterling.

News today includes - Initial jobless claims and Trade Balance both at 13:30

Euro

The Euro exchange rate fell against the US Dollar yesterday after some disappointing data out from Germany. The Euro advanced versus the Pound showing that even weak Euro data isn't enough for our national currency to claw back the losses that we have seen of late, highlighting the UK's sorry position. German exports dropped by an unexpectedly sharp 6.3 % in January from the previous month. Order levels suggest they should rise again soon. Germany had already lost its title of leading global exporter to China last year, however, we did see imports grow by 6%, which offset some of the losses and narrowed the German trade surplus for January to 8.0 billion Euros.

Investors are still continuing to focus on Greece and the risk that its public debt problems might spread to Portugal and other European nations. The Portuguese government said this week that it would cut spending, delay investment and sell state assets in an attempt to fix the country's finances. This will further deter investors from the Euro and cause the Euro exchange rate to weaken but do not expect that to give Sterling any respite. It might be interesting to look out for the ECB monthly report out at 10:00am this morning.

Sterling

The Pound continued to suffer against both the Euro and the US Dollar exchange rates yesterday as industrial outputs slid at the sharpest rate since August, and tested support levels. So far it is managing to hold both levels and the US Dollar has weakened slightly.

The US Dollar is at an interbank exchange rate of 1.4850 and if breached, the Dollar could see another dramatic 8-10% run into the 1.30's. Against the Euro, Sterling is just below the interbank exchange rate of 1.093, which the market did not get far from on a few occasions.

The Sterling exchange rate will not make many gains until the newly announced UK budget on the 24^th of March as this could well hold down Sterling.  Alistair Darling may well be more transparent about possible future cuts, and get the true race underway for the general election.

Data today

A pretty irrelevant BOE Inflation attitudes survey results at 09:30.