Foreign Currency Exchange Report 30 July 2010

The battle for the weakest major currency continues, for now the US Dollar is winning handsomely with weak data pouring out of the States.  Today's focus will be Q2 US GDP figures as economic data seems to be telling a different story to Q2 earnings data. Before that though we have the weekly jobless numbers which are expected to decrease slightly to 460k from last week's surprise increase to 464k.

Sterling

The Pound exchange rate has remained strong despite Bank of England governor Mervyn King's attempt to control the fire ignited by the recent UK Q2 GDP numbers in his testimony yesterday to the Treasury Select Committee. Fellow monetary policy committee member Andrew Sentance's concerns about future inflation acted as a good counterweight to King's more dovish tone and kept the Pound well bid on dips, as the Pound hit its highest level against the US Dollar since mid February.

Euro

The Euro exchange rate hit its highest level against the US Dollar since May on Thursday, boosted by upbeat data, while the US unit was hampered after the US Federal Reserve warned on the economic outlook. Business and consumer confidence in the 16-nation Euro-zone jumped in July to its highest level in more than two years, driven by regional powerhouse Germany, the European Union said Thursday. The Economic Sentiment Indicator (ESI) produced by the European Commission rose to 101.3 points in the single currency area, an increase of 2.3 points from June and the highest level since March 2008. Sentiment also improved across the 27-nation European Union, rising by 1.9 points to 102.2 points. The Euro was boosted too by news of lower German unemployment, improving Italian business confidence and higher Spanish housing permits, according to Credit Agricole CIB analyst Frederik Ducrozet.

US Dollar

The US Dollar exchange rate fell against the Yen and Euro after disappointing durable goods data and a cautionary report from the Federal Reserve. The economic outlook was further clouded by data showing orders for durable goods fell 1% in June after a revised 0.8% dip in May. Analysts had expected a 1% gain. The Dollar index, which measures the US currency against a basket of six others, fell to 82.139 from 82.200. The Euro briefly breached $1.30 before retreating $1.2985. Increased risk aversion pushed up demand for the Yen on Thursday. Meanwhile the FED's Beige Book didn't provide any surprises. It showed slower growth in July, confirming that the economic recovery had lost some momentum.

Other Currencies

In Asian markets the Reserve Bank of New Zealand today followed India's lead by raising interest rates by 0.25% as Asian economies take steps to address inflationary pressures within their recovering economies. The move caused the Kiwi Dollar exchange rate to slide back, a classic case of buy on rumour sell on fact as the move was pretty much expected in most quarters, but the fall was exacerbated by the announcement that future rate rises would be slower in pace due to concerns about future growth.

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