Foreign Currency Exchange Report 16 March 2010

Sterling

No prizes for guessing which factors helped move the markets in trading yesterday. That's right - hung parliament concerns.

The Sterling exchange rate fell against all majors yesterday after a YouGov Plc survey in the Sunday Times showed the Labour Party are 4% behind the Conservatives, indicating either party may need to rely on the smaller Liberal Democrats to form an administration. This news is still concerning for market participants due to the uncertainty it brings regarding the budget deficit and the UK recovery, but they are not the only ones. Even the EU is concerned over the UK's spiralling debt. Last night the European Commission dealt an embarrassing blow to Gordon Brown warning that Britain must do more to curb its spending.

Also released yesterday, were average house prices in England and Wales. This figure climbed 0.1% from February - the smallest rise for the month on record. Prices in London fared no better showing a drop of 2.5%.

It seems that the uncertainty surrounding the UK is still causing Sterling to sell off so watch out if you are a Sterling seller as the market is getting close to some significant technical levels versus both the Euro and the US Dollar.   

Cable opened yesterday at 1.5173 (Interbank) and closed at 1.5052 (Interbank).

GBP/EUR opened yesterday at 1.1040 (Interbank) and closed at 1.1000 (Interbank).

So far this morning, the Sterling exchange rate has continued with its poor run and lost ground versus both the US Dollar and the Euro.

Data releases today

DCLG UK house prices  9.30am

Euro

Just like with Sterling, the one piece of ongoing news that has been dominating the markets with regards to the Euro has been that of Greece and its budget deficit. There was no change yesterday. European finance ministers dampened speculation that there was to be a decision on aid for Greece at a meeting yesterday and the Euro exchange rate fell against most major counterparts as a result.

One of the only currencies that the Euro did not lose against was the Pound due to the reasons mentioned above.

Euro-zone unemployment figures were released yesterday showing that 347,000 jobs were lost in the final quarter of 2009. This was a 2% drop year on year, slightly worse than expectations of a 1.9% drop.

The Euro is certainly in a vulnerable situation losing ground versus a basket of currencies, but the currency is keeping its head above water versus the Pound as the problems in the UK have outweighing those in the Euro-zone, for now.

Data releases today

Euro-zone CPI               10.00am

German ZEW survey      10.00am

US Dollar

The US Dollar had a pretty good days trading yesterday and gained versus both the Euro and the Pound. Data released yesterday showed that Industrial production unexpectedly rose in February, due partly to gains in demand for computers and semiconductors, which signals a pickup in the US business investment is being sustained.

Output climbed 0.1%, the eighth consecutive increase, as utility use and mining increased. In more positive news a report released yesterday showed factories in New York kept expanding in March as orders and employment grew.

It was not all positive though as homebuilder confidence figures unexpectedly declined in March, a sign that the US housing recovery is having trouble gaining momentum.

Data releases today

Building Permits            1.30pm

Housing Starts              1.30pm

Import Price Index         1.30pm

FOMC rate decision       7.15pm

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