Daily Sterling Forecast, Latest Foreign Currency News

Market News - July 30th 2010

Foreign Exchange Daily Insight

Sterling / Euro and US Dollar

The Pound has continued to test resistance levels above $1.56 against the Dollar, the highest level since February, but the UK currency has struggled to break above 1.20 versus the Euro, losing 0.4% on the day. UK housing data showed that prices fell for the first time in five months in July, amid tighter lending conditions and waning consumer confidence, as the government prepares to introduce spending cuts.

The average cost of a home in Britain fell 0.5% from June, another sign that the fabled recovery in the UK property market is losing momentum. The Bank of England released figures yesterday to show that banks approved fewer mortgage applications than expected in June, with home loans down to 47,643, the lowest total in four months.

The UK housing recovery has shown signs of losing momentum in recent months, as consumers prepare for the most aggressive public spending cuts in the post-war era. The Nationwide Building Society said this week that house prices fell for the first time in five months in July, while Hometrack Ltd also said this week that the market is at a “turning point.”

The Bank of England Governor Mervyn King told the Treasury Select Committee on Wednesday that “the gradual improvement in credit conditions that was evident earlier in the year seems to have come to a halt in recent months.” The reports on the UK property market this week have all but dispelled the idea of an interest rate increase, as policy makers maintain emergency stimulus measures.

Ed Stansfield, chief property economist at Capital Economics Ltd, said that “there must be a sense that the rally in house prices that we’ve seen over the last year was built on some pretty shaky foundations. The market is extremely vulnerable to falling back over the remainder of this year.” The gradual deterioration in the economic recovery is expected to sap Sterling sentiment, especially if there are doubts over the prospect of higher interest rates.

The Pound has hit resistance levels close to $1.5650 against the Dollar, while the UK currency retreated to lows around 1.1930, before a mild correction early this morning. UK stocks were virtually unchanged by the close of trading last night, as the benchmark FTSE 100 Index slipped just 0.1%. The gauge is still 8.8% below this year’s high on April 15th, amid concern that growth will be curbed by austerity measures from European governments.

Euro / US Dollar

The Euro rose sharply against the U.S Dollar yesterday, while the single currency has also bounced back against a basket of currencies, including the Pound, as the European economic recovery edges ahead of the U.S and spurs demand for the Euro. A survey released earlier today showed that European confidence in the economic outlook rose to the highest level in two years in July, led by a recovery in services and industrial production.

The Euro has risen to the highest level against the Dollar since May 10th when officials in the Euro-zone announced a $1 trillion bailout package to protect struggling financial institutions against the sovereign debt crisis. The single currency has enjoyed a productive week against the majors, following the European bank stress test results released last Friday, which showed that only 7 out of the 91 banks tested needed to raise capital.

On the other hand, the U.S economic recovery appears to be losing momentum and data released today is expected to show that the preliminary estimate for U.S gross domestic product in the second quarter slowed to 2.5%, from 2.7% in the first three months of the year. The Euro climbed to $1.31 for the first time in almost three months by the close of trading last night.

Data Released July 30th

U.K 00:01 – Gfk Consumer Confidence (July)

EU 10:00 – HICP Flash (July)

EU 10:00 – Unemployment (June)

U.S 13:30 – Employment Costs (Q2)

U.S 13:30 – GDP (Q2)

U.S 14:45 – Chicago PMI (July)

U.S 14:55 – Michigan Sentiment (July Final)

----------------------------------------------------------------------------------------------------------

Market News - July 29th 2010

Foreign Exchange Daily Insight

Sterling / Euro and US Dollar

The Pound made significant gains against a basket of currencies yesterday, rising through $1.56 against the Dollar to the highest level in five-months, while the UK currency also re-visited the resistance level at 1.20 versus the Euro. The Australian Dollar has declined heavily against the Pound and U.S Dollar, after the latest inflationary data showed that consumer prices fell short of initial expectations in June, reducing the prospect of an Australian interest rate hike next week.

The UK currency has risen sharply against all of the 16 most actively traded currencies, particularly the U.S Dollar, after a report in the U.S yesterday showed that consumer confidence declined to the lowest level in five months in June. The Pound is also benefiting from the improvement in risk sentiment, as stocks and commodities continue to rally, reducing the appeal of the Japanese Yen and the U.S Dollar as a refuge.

The Bank of England governor Mervyn King was speaking earlier yesterday and emphasised the need for caution on the economic recovery, saying that there may be a “considerable” way to go before UK monetary policy returns to normal. Policy makers have adopted an ultra loose policy stance, even as inflation exceeds the government’s upper 3% limit.

King said in a testimony to lawmakers that “there will come a point when we will certainly need to ease off the accelerator and return bank rate to more normal levels. I look forward to that time because it will probably be a signal that there is a smoother drive ahead, with the economic outlook improving in a durable way. But I fear there is some considerable distance to travel before we can begin to use the word normal.”

Only Andrew Sentance has stepped out of line and recommended a rate increase over the past two months, with officials concerned about how the government’s spending cuts will impact on the broader economy. David Mile told the Monetary Policy Committee that the central bank should be prepared to step up its bond purchasing program to protect the economic recovery. King’s comments yesterday have done little to dampen Sterling sentiment, as the Pound continues to make strong gains and challenge resistance levels upwards of 1.20 versus the Euro.

The National Institute of Economic and Social Research said in a report earlier this week that the improvement in UK gross domestic product in the second quarter was a “blip” and may not be sustained for the remainder of the year, as the government embarks on the steepest public spending cuts in the post-war era.

The UK currency is likely to continue its upward momentum against the U.S Dollar in the short-term, amid concerns of a double dip recession and increased fears over the state of the property and labour market. On technical grounds, the Pound’s ability to hold above the 200-day moving average was also an important element, with a challenge on technical levels above $1.5620 before a limited correction.

The Pound has declined moderately this morning, after a report from the Nationwide Building Society showed that UK house prices fell in July for the first time in five months, as tighter lending conditions and government cuts slow the economy and deter first-time buyers. The average cost of a home in the UK fell 0.5% from June, but prices are still up 6.6% from this stage last year.

Euro / US Dollar

The Euro rose against the U.S Dollar and Japanese Yen yesterday, as improving risk appetite pushed global equity markets higher and reduced demand for the perceived safe haven assets. The single currency was close to its strongest level against the Dollar in two months, as the MSCI World Index rose for the fifth straight day.

Greg Gibbs, a currency strategist at RBS, said yesterday that reports including last week’s German consumer confidence data and credit growth “continue to show surprising strength”. However, the ECB reported yesterday that there had been a further tightening of credit conditions during the second quarter and this will ease some concern over the financial sector.

The U.S durable goods orders data was weaker-than-expected with the headline figure dropping 1% on the month for June. The Fed’s Beige Book was also mixed, as some districts reported improved conditions, but credit conditions remained generally tight and commercial real estate remained weak. The Euro has found it difficult to sustain its momentum above the $1.30 level, as the Dollar nudged higher towards the close of trading last night.

Data Released July 29th

U.K 07:00 – Nationwide House Prices (July)

U.K 09:30 – Consumer Credit (June)

U.K 09:30 – Mortgage Applications (June)

GER 09:00 – Unemployment (July)

EU 10:00 – Business Climate (July)

EU 10:00 – Economic Sentiment (July) – Consumer / Industrial / Services

U.S 13:30 – Initial Jobless Claims (w/e 24th July)

----------------------------------------------------------------------------------------------------------

Market News - July 28th 2010

Foreign Exchange Daily Insight

Sterling / Euro and US Dollar

The Pound rallied to a fresh five-month high against the U.S Dollar this morning, while the UK currency also made strong gains versus the majority of the 16 most actively traded currencies. Sterling hit a high of 1.5575 in London, as global risk appetite continues to improve, diminishing the allure of the U.S Dollar as a safe haven asset.

Concerns over the U.S economic outlook also dominates, amid fears of a double-dip recession, as the economic data points to a slowing housing market and rising unemployment. UK stocks have risen for a second successive day, buoyed by a rally in banking shares, as Barclays Plc rose 5%. The benchmark FTSE 100 Index was up 0.8% by midday, while crude oil prices also hit an 11-week high, after analysts at Goldman Sachs said that the price was too cheap.

Risk appetite continued to improve, after the Basel Committee on Banking Supervision relaxed some of its tougher proposals on capital and liquidity rules. Barclays Plc and Lloyds Banking Group Plc led the rally in banking shares, as the Committee allowed certain assets, including minority stakes in other financial companies to count as capital.

The latest CBI retail sales data yesterday was much stronger-than-expected and this triggered a fresh surge in the Pound to the upper resistance levels above $1.55 against the Dollar. The survey recorded a strong figure for July and retailers were also optimistic over the outlook for August. Although distorted to some extent by methodology changes, the survey was a four-year high and the Pound was able to continue its upward momentum.

The Pound also recovered earlier losses against the resurgent Euro, rising towards 1.1960 in London, despite a lack of any key economic data released in the UK or the Euro-zone. The corrective recovery appears more technical than fundamental, but Euro buyers are advised to be cautious, as the single currency broke through $1.30 against the U.S Dollar this morning. The performance of the single currency versus the greenback seems to be dictating GBP/EUR in recent days and buyers would be well placed to utilise a stop order to protect against a further downward move.

The UK currency remained broadly resilient towards the close of trading last night, despite a report from the National Institute of Economic and Social Research, which showed that the pace of UK second quarter economic growth was a “blip” and that the Bank of England should continue to maintain emergency stimulus measures.

The preliminary estimate of UK gross domestic product in the three months to June showed that the economy expanded 1.1%, the fastest pace in four years. The result of the data far exceeded initial expectations and presents a difficult challenge to policy makers, who must decide if the economy faces a greater threat from inflation or need additional stimulus, as the government implements the deepest spending cuts in the post-war era.

Simon Kirby, NIESR economist, told reporters yesterday “I don’t think that growth rate will be sustained. Far from that, I think the growth rate will fall back somewhat quite sharply.” Bank of England policy maker Andrew Sentance this month repeated his recommendation to begin raising interest rates, citing “resilient” inflationary pressures.

Euro / US Dollar

The Euro maintained a strong tone against the Dollar in early European trading yesterday, rising above the coveted $1.30 level against the U.S Dollar. European economic data again provided support, with German consumer confidence rising to 3.9 in July, from a revised 3.6 in June. There was also an annual increase in Euro-zone money supply for the first time since January.

Risk appetite also remained firm and helped push the Euro to the highest level in 11-weeks against the Dollar. The U.S housing data was slightly stronger-than-expected with the Case/Shiller house price index recording a 4.6% increase in the year to May. However, a separate report showed that U.S consumer confidence fell below forecasts in July, as mounting concern over job losses and earnings threatens to curtail the recovery.

Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, said that “faith in the economic recovery is failing. It’ll be 2013 before we see any semblance of normality in the labour market. It means weaker purchases.” There was some weakening in risk appetite following the data, which provided some initial Dollar support. amid a retreat in high-yield and commodity currencies.

Data Released July 28th

U.K 11:00 – Land Registry Home Prices (June)

U.S 13:30 – Durable Goods (June)

U.S 19:00 – Federal Reserve Beige Book Published

----------------------------------------------------------------------------------------------------------

Market News - July 27th 2010

Foreign Exchange Daily Insight - The Euro rallies against the majors, amid improved investor confidence

Sterling / Euro and US Dollar

The Pound took advantage of broad Dollar weakness yesterday, rising to the highest level in three months in London, after UK banks sailed through the European bank stress test. The UK currency has continued through $1.55 for the first time since April 16th, after the FSA said on Friday afternoon that HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Plc all passed tests that were designed to show their ability to withstand further economic turmoil.

Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada, said that “UK banks came out okay from the stress tests, which is probably helping the Pound extend its gains.” The UK currency rose even as data signaling that the economic recovery may be in jeopardy of stalling, as the government cuts spending in an attempt to rein in deficit.

According to a survey from Hometrack Ltd, the average price of a home in England and Wales fell 0.1% from June, as the recovery in the property market shows signs of slowing. The Pound has gained 2.7% against the U.S Dollar since June 25th, amid investor optimism that the recovery will be sustained, after second quarter growth figures came in better-than-expected.

The Pound rallied against the lower-yielding currencies like the Dollar and the Yen, as the FTSE 350 Banks Index gained and the UK currency also withstood a cut in the UK economic growth forecast from the Ernst & Young LLP Item Club. There have been some suggestions that the surprising acceleration in UK gross domestic product in the second quarter will mark the peak of the economic recovery. On Friday, the preliminary estimate of GDP in the three months to June rose 1.1%, almost double the expectations of 0.6% growth.

The Pound rallied towards the pivotal 1.20 level against the Euro on Friday, prior to the release of the stress test results at 5pm, while choppy trading conditions towards the close of the European session saw the UK currency close just under the level. The Euro continued to rally against the Dollar yesterday approaching $1.30 by midday, as only seven out of the 91 banks tested failed and speculation persists that the U.S economy may suffer a “double dip” this year.

The economic outlook in the U.S has soured in recent weeks, while Europe and China have also decelerated simultaneously, leaving widespread concerns over the state of the global economy. The Pound failed to break above 1.20 against the Euro and lost ground towards the close of trading last night. The UK currency will probably remain in the ascendancy against the Dollar, as UK stocks climbed to the highest level in 10-weeks.

Euro / US Dollar

The Euro continued to rally against the majority of the 16 most actively traded currencies yesterday, amid speculation that European banks will be able to avoid defaults, after only 7 out of the 91 banks failed the stress test. The European Union found that banks only need to raise a combined €3.5 billion of capital and regulators are using the tests to reassure investors about the health of financial institutions, after the sovereign debt crisis engulfed Greece, Spain and Portugal.

Rising budget deficits in those struggling EU nations has increased concern that they won’t be able to pay their own debts. Adrian Foster, head of financial markets research for Asia at Rabobank, said that “medium-term accounts look to have come through and picked up the euro. They don’t see near-to-medium term prospects for a default in Europe.”

Some investors have questioned whether the stress tests were rigorous enough to really highlight the problems with European financial institutions, should the sovereign debt crisis worsen. The ECB President Jean-Claude Trichet said yesterday that the tests were important for providing transparency.

The U.S economic data released yesterday boosted risk appetite, after the sales of new homes rose unexpectedly in June, following an unprecedented collapse the previous month. New home purchases increased 24% from May to an annual pace of 330,000, a signal that the worst of the slump came about due to the end of a government tax credit.

The Euro has rallied towards the significant resistance level at $1.30 against the Dollar and it is no coincidence that the single currency has also made gains versus the Pound. The EUR/USD rate will largely dictate what happens with GBP/EUR and at present sentiment towards the single currency has improved following a string of positive economic reports and the results of the stress test.

The Australian Dollar remained resilient against the majors yesterday, as the prospect of an interest rate increase in August received a boost. The Reserve Bank of Australia said last week that the policy makers intend to use the results of the European stress test to decide whether to raise rates next month, while the latest CPI numbers are expected to show robust inflationary pressures.

Data Released July 27th

U.K 11:00 – CBI Distributive Trades (July)

EU 09:00 – M3 (June) – 3 Month Moving Average

U.S 14:00 – Case Shiller House Prices (May)

U.S 15:00 – Consumer Confidence (July)

----------------------------------------------------------------------------------------------------------

Market News - July 26th 2010

Foreign Exchange Daily Insight

Sterling / Euro and US Dollar

Following on from last week, the Pound rallied by the most in a week against the U.S Dollar, approaching $1.55 by the close of trading on Friday, while the UK currency also traded back towards 1.20 versus the Euro, amid reports from the Office of National Statistics, which showed that UK retail sales rose more than expected in June. Sales rose 0.7% on the month, reducing concern that the economy might suffer a “double-dip” recession, after the biggest public spending cuts in a generation.

Paul Mackel, a director of currency strategy at HSBC Holdings Plc, said that “the retail numbers were very punchy. The European data set has been surprisingly strong and the Pound is riding the coattails.” The UK currency maintained gains against the weak Dollar, after reports showed initial jobless claims rose and existing home sales fell for a second month.

However, the UK recovery may be undermined by events at home and abroad. The deepest spending cuts in the post war era are looming and the sovereign debt crisis that has engulfed much of the Euro-zone may mean that the UK economy is poised to weaken in the second half of the year. That sentiment was echoed in the minutes from the Bank of England’s last policy meeting, released earlier this week.

Policy makers are evidently concerned about the prospects for the economy, as they even considered expanding emergency stimulus measures in June and blocked Andrew Sentance’s sole voice for an increase in UK interest rates. Investors are becoming increasingly concerned that the second quarter figures may just be “as good as it gets” for the economy in 2010, but the Pound has advanced on the robust growth in retail sales.

The Pound continued to gain versus the U.S Dollar, as UK stocks continued to advance following reports in Europe that services and manufacturing growth unexpectedly accelerated in July. The Euro has rallied 8% against the Dollar from the lowest level in four years last month, as investors became more optimistic that the struggling peripheral nations in the Euro-zone will be in a position to finance their own debt, after the ECB embarked on a policy to buy bonds.

Greece, Spain and Portugal have managed to sell €50 billion of debt since May 10th, as the central bank looks to create a near $1 trillion rescue package. The Pound rallied through 1.19 against the Euro on Friday, while the UK currency made significant gains versus the majority of the 16 most actively traded currencies, after a report from the Office of National Statistics showed that the UK economy grew almost twice as much as expected in the second quarter.

Gross domestic product expanded at the fastest pace in four years in the three months to June, rising 1.1%, from 0.3% in the final estimate for the first quarter. The Pound has rallied to a high of $1.5498 against the U.S Dollar, approaching the highest level in three months. The surprising degree of growth in the UK economy can be attributed to the surge in service industries, manufacturing and construction.

Many economists predicted that the second quarter numbers will be “as good as it gets” this year, as the government prepares to introduce tough spending cuts, while the slowdown in the global economy may hurt demand. The focus on Friday was fixed on the release of the European stress test results, as a total of 91 banks were assessed to see whether they would be able to survive further economic downturns and fund their own deficits.

The focus in the UK this week will fall largely on housing and personal lending data. Hometrack, Land Registry and Nationwide are all expected to release data on the UK property market, as prices continue to cool. Meanwhile, UK mortgage approvals should reflect the ongoing tightness of credit conditions, but the Pound may find support, as stocks continue to rally.

Euro / US Dollar

The Euro rallied for the first time in three days against the U.S Dollar on Thursday, after reports in Europe showed that manufacturing and service industries unexpectedly accelerated in July. A composite index based on a survey of purchasing managers increased above initial estimates in June, while a gauge of German manufacturing also rose this month.

The Euro weakened against 12 out of the 16 most actively traded currencies following the results of the European bank stress test on Friday, amid speculation that the standards of the test were too low to ease concerns that the region’s debt crisis will spread. The single currency declined for the first time in two-days against the Dollar, after regulators found seven banks need to raise a combined €3.5 billion of capital.

There was an immediate concern that the stress tests may not have been strict enough. Mike Jones, a currency strategist at Bank of New Zealand, said that “initial reaction has been a disappointment about how far the stress tests went. There are some reasons for people to be more cautious going forward. With the euro, there are doubts the currency can sustain a rally above $1.30. The Euro’s rally is running out of steam.”

The increasing concern over the possibility of a double dip recession in the U.S means that the economic data released this week will come under further scrutiny. Friday’s release of the first estimate of gross domestic product in the second quarter is expected to show growth of 2.5%, a modest slowing from 2.7% in the previous quarter.

Data Released July 26th

U.K 00:01 – Hometrack House Prices (July)

U.S 15:00 – New Home Sales (June)

----------------------------------------------------------------------------------------------------------

Market News - July 23rd 2010

Foreign Exchange Daily Insight - The Euro rallies against the majors ahead of the European stress test results

Sterling / Euro and US Dollar

The Pound rallied by the most in a week against the U.S Dollar, while the UK currency also traded back towards 1.19 versus the Euro, amid reports from the Office of National Statistics, which showed that UK retail sales rose more than expected in June. Sales rose 0.7% on the month, reducing concern that the economy might suffer a “double-dip” recession, after the biggest public spending cuts in a generation.

The rise in sales may be exaggerated due to the World Cup in June and good weather but nonetheless the report shows that the UK economic recovery is still gathering momentum. The preliminary estimates of UK gross domestic product in the second quarter will be released this morning and economists are predicting growth of 0.6%, double the final estimate for the first three months of the year.

Paul Mackel, a direct of currency strategy at HSBC Holdings Plc, said that “the retail numbers were very punchy. The European data set has been surprisingly strong and the Pound is riding the coattails.” The UK currency maintained gains against the weak Dollar, after reports showed initial jobless claims rose and existing home sales fell for a second month.

The Pound has rallied 0.8% versus the U.S Dollar, as UK stocks continued to advance following reports in Europe that services and manufacturing growth unexpectedly accelerated in July. The Euro has rallied 8% against the Dollar from the lowest level in four years last month, as investors became more optimistic that the struggling peripheral nations in the Euro-zone will be in a position to finance their own debt, after the ECB embarked on a policy to buy bonds.

Greece, Spain and Portugal have managed to sell €50 billion of debt since May 10th, as the central bank looks to create a near $1 trillion rescue package. The European bank stress test results will be released this afternoon. It seems that many investors believe that the results may actually be quite positive for the Euro-zone, but we maintain that if 15% or more of the 91 European banks fail the stress tests, the Euro will come under immediate and substantial selling pressure.

Euro / US Dollar

The Euro rallied for the first time in three days against the U.S Dollar yesterday and also recovered early losses versus the Pound, after reports in Europe showed that manufacturing and services industries unexpectedly accelerated in July. A composite index based on a survey of purchasing managers increased above initial estimates in June, while a gauge of German manufacturing also rose this month.

Jack Spitz, managing director of foreign exchange at National Bank of Canada, said that “much of the move overnight comes on the heels of the data that was seen in the European zone. It comes down to markets reacting positively to data.” The Dollar came under further scrutiny, after existing home sales fell 5.1% in June.

The Euro has rallied 5.3% against the Dollar in July, after dropping for seven straight months, ahead of today’s release of the result of the stress tests on the region’s banking sector. EU regulators are examining the strength of the banks to determine if they can survive potential losses from both a recession and a decline in the value of government debt.

Data Released July 23rd

EU – Results of Banking Stress Tests

GER 09:00 – Ifo Index (July)

U.K 09:30 – Prelim GDP (Q2)

----------------------------------------------------------------------------------------------------------

Market News - July 22nd 2010

Foreign Exchange Daily Insight

Sterling / Euro and US Dollar

The Pound recovered some recent losses against the Euro yesterday, pipping just above 1.19 in London, while the UK currency also peaked at $1.5334 versus the Dollar, before declining later in the day. The minutes from the Bank of England’s last policy setting meeting showed that all members voted unanimously to keep the bond-purchasing program unchanged at £200 billion.

The eight member committee, led by the governor Mervyn King, also voted 7-1 to keep interest rates on hold at a record low of 0.5%, with Andrew Sentance again voting for a 25 basis point increase to combat inflation. The tone of the accompanying statement seemed to suggest that policy makers are becoming a little uneasy about persistent inflationary pressures, but still refuse to tighten policy and risk a “double dip” recession.

The minutes said that it was too soon “to fully assess the implications of government budget cuts on inflation, but the planned sales-tax increase would probably add to consumer price growth in 2011.” The statement portrays a difficult balancing act for policy makers, as they weigh up the risk of fragile growth against rising inflationary concerns and that has proved positive for the Pound.

Kenneth Broux, a senior market economist at Lloyds Banking Group Plc, said that “the minutes came out more dovish because of the growth outlook that they think has deteriorated. Sterling can ease back in the next few days.” There seems to be a diverse opinion on monetary policy within the MPC, with some members believing that a rate hike is unlikely this year.

Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd, said that “the big surprise was that some members even considered expanding monetary stimulus. A rate hike looks unlikely before year-end.” However, the UK inflation rate rose to a 17 month high in April and was at 3.2% in June, above the government’s upper 3% limit.

The Pound has gained 5% against the Euro this year on speculation that the UK economy will recover more quickly than the Euro-region, which have been undermined by the sovereign debt crisis that has spread from Greece to Spain and other peripheral nations. Roberto Mialich, a senior currency strategist at UniCredit SpA, said that “the picture for sterling remains positive. The BoE is in a more difficult position, in the sense that it has to face a dilemma because inflation remains high.”

The UK currency was up 0.8% against the Euro and looks poised to strengthen further after hitting the lowest level since May 31st earlier this week. The resurgence in Euro sentiment always looked fragile and the failed Hungarian bond auction yesterday added to concerns that the sovereign debt crisis that has engulfed some of the peripheral Euro-zone nations is set to worsen.

The reports yesterday lead us nicely into the business end of the week. The Euro may be vulnerable to reports this morning that may show European manufacturing and services industries slowed in June, while the Dollar is susceptible to reports that existing home sales slumped last month. The focus this week has always been directed towards the European bank stress test results on Friday.

An interesting take from Commerzbank AG yesterday:- “While the rumour has it that not all banks have passed the test, this, however is not necessarily a piece of bad news for the Euro. If only a limited number of financial institutions need to make adjustments, this could be seen as a sign that the test was not too easy.”

We’re not totally convinced by this statement. If 15% or more of European banks fail the stress test then we expect the Euro to weaken significantly against the Pound and the U.S Dollar, amid concern that a number of financial institutions will require fiscal aid from the EU and the International Monetary Fund.

Euro / US Dollar

The Euro declined against the Pound and the U.S Dollar yesterday, amid further uncertainty over the bank stress tests due on Friday and there were increased doubts whether the tests would be robust enough to reassure investors. The Portuguese bond auction also disappointed investors with weakening demand for securities, after the failure in Hungary earlier in the week.

Despite the recent improvement in Euro sentiment, the single currency is undermined by structural vulnerabilities, amid concerns that growth won’t be strong enough. The Federal Reserve Chairman Ben Bernanke was cautious in tone in his speech last night, with comments that economic outlook was uncertain. He stated that financial conditions were less favourable for growth, but there was some optimism that loan losses had peaked.

Bernanke also stated that the Fed was evaluating different methods to reduce the balance sheet, but the underling mood was one of caution over near-term trends. There was some relief that the Fed refrained from lowering interest rates payable on excess reserves, but Bernanke did outline support for measures if they were required and this reinforced a lack of support for the Dollar.

Risk appetite deteriorated significantly following his testimony, as investors worried over the outlook for the global economy. Ironically, the U.S Dollar strengthened against the Euro, as investors favoured the safe haven currencies. Lloyds Banking Group Plc are predicting that the Euro may fall as low as $1.2750 before the stress test results tomorrow.

Data Released July 22nd

EU 08:58 – Markit Flash PMI – Composite (July) – Manufacturing – Services

EU 10:00 – Industrial Orders (May)

EU 15:00 – Flash Consumer Confidence

U.S 13:30 – Initial Jobless Claims (w/e 17th July)

U.S 15:00 – Existing Home Sales (June)

U.S 15:00 – Leading Indicators (June)

----------------------------------------------------------------------------------------------------------

Market News - July 21st 2010

Foreign Exchange Daily Insight � The Pound bounces back against the majors, despite a host of poor economic reports

Sterling / Euro and US Dollar

The Pound has declined heavily against the U.S Dollar in early trading yesterday, dropping almost 1% from a daily high of $1.5309, while the UK currency also traded down towards the lowest level since May 31st versus the Euro. A report from the Office of National Statistics showed that June’s budget shortfall narrowed by less-than-expected on the month, reducing the immediate prospect of an increase in UK interest rates.

Policy makers within the Monetary Policy Committee have left borrowing costs unchanged at a record low 0.5%, but recent economic developments and rising inflationary pressures have left some officials uneasy about the ultra-loose monetary policy. However, the emergency budget outlined the need for the most severe government spending cuts in a generation and the increase in the deficit last month means that policy makers will probably leave rates on hold over the coming months.

The Pound touched a low of 1.1725 against the Euro yesterday before recovering back towards 1.18 by the close of trading last night. A separate report from the Bank of England showed that UK mortgage approvals fell in June, as tighter lending conditions and fading consumer confidence weighs heavily on demand. The number of loans for home purchases granted was down to 48,000, from 51,000 in May and the report is just the latest indication that the mini-revival in the housing sector at the start of the year is losing its momentum.

The Pound is weakening on speculation that the government spending cuts will drag the fragile UK economy back into a recession. The Nationwide Building Society has reported that consumer confidence fell to the lowest level in a year in June, while Rightmove Plc reported earlier in the day that house prices dropped in July.

Elsewhere yesterday, the Confederation of British Industry reported that its quarterly business confidence index dropped significantly from April. Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd, said that “some of the shine has come off sterling. It seems clear that the Bank of England will stay where it is. It won’t be chasing higher rates.”

The minutes from the Bank of England’s June’s policy setting meeting are due for release this morning and investors will be very interested to see if any members joined Andrew Sentance in recommending an increase in borrowing costs. The Office of National Statistics will also release the latest retail sales data for June, which is expected to be robust, with the World Cup in mind and good weather conditions.

The Pound rebounded against the Euro last night and closed well above 1.18, as Hungary’s smaller-than-expected debt auction brought the single currency back from the highest level in six weeks. The UK currency also resumed its upward momentum against the U.S Dollar, as the UK stock market recovered from earlier losses.

Henrik Gullberg, a currency strategist at Deutsche Bank AG, said that “the focus is very much with euro-dollar dynamics. Most currencies outside of the euro have held up well today. Euro-sterling is very much driven by what happens in euro-dollar and I think that’s what we’ve seen.” The Pound was up 0.5% against the Euro last night and 0.2% versus the U.S Dollar, with near-term resistance at $1.5472, the highest level since April.

Euro / US Dollar

The Euro continued to make gains in early trading on Tuesday, pushing towards a fresh 10-week high above $1.3020 against the U.S Dollar, amid reports that showed higher-than-expected German producer prices. The move above $1.30 was short-lived and there was an initial retreat back towards $1.2930, as technical selling pressure increased and the Hungarian bond auction disappointed investors.

The single currency subsequently fell against 14 out of the 16 most actively traded currencies, as Hungary’s short-term borrowing costs rose to a 19-week high at its first debt sale since international creditors suspended talks. There was a negative impact on the Euro, amid concern that there would be a contagion effect on weaker economies such as Greece and Spain.

The Dollar continues to struggle against the majors, as the U.S economic data indicates that growth in the world’s largest economy losses momentum. The U.S housing starts data was weaker-than-expected with a 5% weekly decline on the annual rate. Comments from the Chairman of the Federal Reserve Ben Bernanke will be watched closely this afternoon, amid a gradual deterioration in U.S economic trends.

Data Released July 21st

U.K 09:30 – BoE MPC Minutes 7th/8th July Meeting

U.K 09:30 – Retail Sales (June)

----------------------------------------------------------------------------------------------------------

Market News - July 20th 2010

Foreign Exchange Daily Insight

Sterling / Euro and US Dollar

The Pound declined against almost all of the 16 most actively traded currencies yesterday, amid concern that the UK economic recovery is losing momentum. The overwhelming improvement in Euro sentiment has been somewhat of a surprise but the success of the Greek and Spanish bond auctions last week, combined with a fundamental lack of appetite for the U.S Dollar means that investors are coming back to the Euro.

Risk sentiment is also playing a part. The Pound broke through a ten-week high against the U.S Dollar towards the end of last week, as global stocks continued to soar. The FTSE 100 Index initially advanced yesterday, as a rally in energy companies offset the drop in BP Plc shares. By the close of trading last night, UK stocks had declined for a fourth straight day, amid speculation that the planned acquisition of BP’s Alaskan assets were set to stall.

The Euro has risen again against the Dollar, approaching a high of $1.30 in early European trading, as concern that the U.S recovery is floundering diminished appetite for the greenback as a haven.
The single currency actually strengthened against all but one of the major currencies, before a report in the U.S , which showed a further deterioration in the U.S housing sector. The shift in focus away from the sovereign debt crisis that has engulfed much of Europe to the economic slowdown in the U.S has been the major contributory factor to the sudden reversal in Euro sentiment.

However, there is a potential stumbling block on the horizon. The Euro may come under renewed selling pressure towards the end of the week in anticipation of the European bank stress test results that are scheduled for release on July 23rd. The Pound has lost significant ground against the single currency over the past week and although we wouldn’t like to put all of our eggs in one basket, we feel that the results of the stress tests could bring about another round of Euro weakness.

The Pound remained on the defensive for much of the day yesterday, falling back towards $1.53 against the Dollar. The UK currency also weakened to a fresh seven-month low versus the Euro, amid an underlying lack of confidence in the global economy. The economic data released in the UK will be closely watched this week, with public sector borrowing figures released this morning.

A higher than expected deficit figure would tend to undermine confidence in the Pound, while the minutes from the Bank of England’s last policy setting meeting are expected to portray a split vote on whether officials wanted to raise interest rates in June. The Pound has recovered marginally against the Dollar this morning, as the U.S currency remains on the defensive following a barrage of negative economic data.

Euro / US Dollar

The Euro remained resilient against the struggling U.S Dollar yesterday, shrugging off reports that the Irish credit rating was downgraded to Aa2 from Aa1 by Moody’s Investors Service. There are persistent structural fiscal weaknesses in the Irish economy, but the outlook was described as stable and the Euro rose sharply after initial weakness.

There is continued speculation surrounding the European bank stress test results, which are due to be released this Friday. Overall, there seems to be a mood of cautious optimism over the outcome of the tests and this has also provided a degree of support for the Euro, but sentiment could quickly change if there are rumours that banks will need to raise substantial new capital.

The U.S housing data was again weaker-than-expected with the NAHB sentiment index dropping to the lowest level in 15 months. The decline in housing has increased concern over the construction data today and maintained a negative outlook for the U.S economy. The Euro moved back towards $1.30 but was unable to make a serious challenge to resistance levels.

Data Released July 20th

U.K 09:30 – PS Net Borrowing (June)

U.K 11:15 – CBI Industrial Trends (July)

U.S 13:30 – Housing Starts (June)

CAN 14:00 – BoC Interest Rate Announcement

----------------------------------------------------------------------------------------------------------

Market News - July 19th 2010

Foreign Exchange Daily Insight – The Pound declines for a third successive week against the Euro, the longest losing steak since March

Sterling / Euro and US Dollar

Following on from last week, the Pound has rallied to a fresh two-month high against the U.S Dollar on Thursday, led by an overall improvement in risk appetite, as stocks gained for the seventh time in eight days, reducing the demand for lower-yielding currencies like the Dollar and the Japanese Yen. Somewhat surprisingly, UK stocks were little changed after JP Morgan Chase & Co reported better-than-expected earnings data, saying that profit rose 76%, which quashes some concern from the Federal Reserve that economic growth is slowing in the U.S and in China.

The Pound has also rallied strongly against the majority of the 16 most actively traded currencies, including Australian Dollar and Swiss Franc. The UK currency has remained largely subdued against the Euro though, as investors await the results of European bank stress tests released on the 23rd July.

There was an apparent lack of direction on GBP/EUR, but a break towards 1.1840 towards the end of the week has increased the prospect of further downside momentum.

The Pound maintained a firmer tone against the Dollar, as there was a move to test resistance levels above $1.5320. Sentiment was boosted by comments from U.S pension fund PIMCO that it now considers UK bonds more attractive. These comments will help maintain expectations of capital inflows and also help to reduce concerns surrounding sovereign debt.

The UK currency remained in the ascendancy despite comments from Bank of England policy maker David Miles, who said that the time was not right to begin raising UK interest rates. The tone of his comments are in stark contrast to his colleague within the MPC Andrew Sentance, who has reiterated that higher inflation makes a rate increase inevitable.

The uncertainty surrounding UK monetary policy will continue to dominate, as investors wait for further comments from Bank officials, ahead of the minutes from the June policy meeting released next week. There will be expectations that the Central Bank will not be in a position to raise interest rates significantly this year, which would tend to undermine Sterling.

The Pound rallied to a fresh ten-week high against the U.S Dollar on Friday but the upside move appears to be fading, amid concerns that the global economic recovery is losing momentum, following disappointing economic reports in China and the U.S. The UK currency dropped back towards $1.5375 versus the greenback but the Pound’s gradual deterioration against the Euro seems to be gathering pace.

Sterling has slumped below 1.19 against the resurgent single currency, trading at a low of 1.1826, as investors believe that the problems surrounding U.S corporate earnings and unemployment have eclipsed the sovereign debt crisis. The Pound is currently trading at the lowest level in six weeks against the Euro, before reports on Friday, which showed falling U.S inflation and a further decline in housing.

Henrik Gullberg, a currency strategist at Deutsche Bank AG, said that “the risk premium for the euro is being reduced and there is scope for euro-sterling to come up from current levels. The other side of euro strength is dollar weakness.” The Pound has fallen for three weeks in a row, the longest stretch of losses since March.

Recent data in the UK has highlighted that British house prices are set to drop significantly through 2012, as the coalition government steps up spending cuts and credit conditions worsen. Nevertheless, it would be premature to announce the end of the Pound’s upward trend against the Euro, considering that the European bank stress test results are due out at the end of the week.

We have been discussing the benefits of a stop order with our clients looking to purchase Euros because if 15% or more of the banks in the Euro-zone fail those stress tests, we could see another period of Euro weakness. The Pound was still up just over 2% against the U.S Dollar, while the UK currency has made solid gains against the higher-yielding currencies like the Australian and New Zealand Dollar, as risk sentiment remains a prominent factor.

There is a host of key economic data released in the UK this week, including the minutes from the Bank of England’s last policy-setting meeting. The report is expected to show that Andrew Sentance was again the sole voice for a rate increase from the decision to keep interest rates on hold at the record low of 0.5%.

Elsewhere, the preliminary estimate of gross domestic product in the first quarter should show the first year-on-year growth rate of the economic recovery. The focus, however, is likely to fall on the June retail sales report to see if the growth from the previous month can be carried forward. In addition, public finance figures will focus attention on the problems of the budget deficit.

Euro / US Dollar

The Euro encountered strong support below $1.27 against the Dollar and was able to resist renewed selling pressure, as underlying sentiment towards the single currency remained generally firmer. However, the Euro continued to struggle against the Japanese Yen, as European industrial output rose by less than expected, while Spain’s financial institutions borrowed a record amount from the European Central Bank.

Fitch Ratings commented that Spain’s credit-rating outlook was stable for the time being and this helped underpin support for the Euro. The U.S retail sales report was slightly weaker than expected, with a headline 0.5% decline for June, following a revised 1.1% fall the previous month. The report will maintain concerns over the U.S economic outlook and the Dollar will continue to be vulnerable on yield grounds.

The FOMC minutes for the June meeting showed that policy makers were slightly more negative in tone, with comments that the outlook remained relatively modest. These comments will reinforce speculation that the Federal Reserve could be forced to resume a measure of quantitiative easing to support the economy later this year.

The Euro continued to gain ground against the Pound and the Dollar through the course of the week, as Spain attracted greater demand in its bond auction than expected, generating some optimism that the struggling peripheral nations in the Euro-zone will be able to fund their own deficits, without emergency assistance from the IMF and European Union.

The Euro rallied against the Dollar and the higher-yielding currencies declined along with Asian stocks. Goldman Sachs Group Inc lowered their forecasts for EUR/USD, as concerns mount over the outlook for the U.S economy and “reasonably solid” European economic data. Australian and New Zealand Dollars both declined heavily yesterday, along with Asian stocks.

Data Released July 19th

U.K 00:01 – Rightmove House Prices (July)

EU 09:00 – Current Account (May)

U.S 15:00 – NAHB Home Builders Sentiment (July)

----------------------------------------------------------------------------------------------------------

Market News - July 16th 2010

Foreign Exchange Daily Insight – The Pound rallied to a ten-week high against the U.S Dollar

Sterling / Euro and US Dollar

The Pound has rallied to a fresh two-month high against the U.S Dollar yesterday, led by an overall improvement in risk appetite, as stocks gained for the seventh time in eight days, reducing the demand for lower-yielding currencies like the Dollar and the Japanese Yen. Somewhat surprisingly, UK stocks were little changed after JP Morgan Chase & Co reported better-than-expected earnings data, saying that profit rose 76%, which quashes some concern from the Federal Reserve that economic growth is slowing in the U.S and in China.

There is an apparent lack of direction on GBP/EUR, as the pair trades between a tight range between 1.1950 – 1.2000.

The Pound maintained a firmer tone against the Dollar throughout the day, as there was a move to test resistance levels above $1.5320. Sentiment was boosted by comments from U.S pension fund PIMCO that it now considers UK bonds more attractive. These comments will help maintain expectations of capital inflows and also help to reduce concerns surrounding sovereign debt.

Although UK stock market gains subsided towards the close of trading last night, the Pound continued to trade higher versus a basket of currencies. A report from CMC Markets yesterday said that the Pound may rise on faster inflation and lower jobless claims. The UK currency is benefiting from “yesterday’s robust job figures and ongoing nervousness with above target inflation. A breach of $1.5380 will make $1.5450 the next focal point.”

Euro / US Dollar

The Euro has gained ground against the Pound and the Dollar this morning, as Spain attracted greater demand in its bond auction than expected, generating some optimism that the struggling peripheral nations in the Euro-zone will be able to fund their own deficits, without emergency assistance from the IMF and European Union.

The Euro rallied against the Dollar and the higher-yielding currencies declined along with Asian stocks. Goldman Sach Group Inc have today lowered their forecasts for EUR/USD, as concerns mount over the outlook for the U.S economy and “reasonably solid” European economic data. Australian and New Zealand Dollars both declined heavily yesterday, along with Asian stocks.

Peter Frank, a strategist at Societe Generale SA, said that “there’s been a lack of bad news for the euro and softening growth in the U.S. There’s very little in the way of bond supply until September, so not much to rock the boat.” The minutes from the last FOMC meeting showed that policy makers are becoming concerned with unemployment and decelerating inflation.

Data Released July 16th

U.S 13:30 – Consumer Price Index (June)

U.S 13:30 – Real Earnings (June)

U.S 14:00 – TICS Capital Flows (May)

U.S 14:55 – Michigan Sentiment (July Prelim)

----------------------------------------------------------------------------------------------------------

Market News - July 15th 2010

Foreign Exchange Daily Insight – The Pound surges to a two month high against the Dollar, as jobless claims rise less than expected

Sterling / Euro and US Dollar

The Pound rose to the highest level in two months against the U.S Dollar yesterday, while the UK currency also made gains versus 15 out of the 16 most actively traded currencies, including the Euro, after UK unemployment figures beat initial expectations. The number of people out of work and claiming jobless benefits in June fell by 20,800, as the claimant count fell for a fifth straight month.

The report from the Office of National Statistics boosts optimism that the UK economy may continue to recover, even as the government drastically cuts public spending to rein in the deficit. The Pound subsequently rallied almost 1% against the U.S Dollar to a high of $1.5290 in London, the strongest level since May 3rd.

Chris Turner, head of foreign exchange research at ING, said that “the claimant count has fallen for the fifth month in a row, and that’s encouraging. Maybe there are some doubts emerging about how slow UK growth is going to be this year.” The Pound has gained 7.3% against the Dollar on May 20th, helped, in part, by confidence that the coalition government will reduce the deficit without prompting a double-dip recession.

The UK currency was also up 0.8% versus the Euro, as Bank of England policy maker Andrew Sentance reiterated his stance on the need to begin tightening monetary policy. He was quoted in a regional newspaper as saying that officials need to start raising interest rates – we will have to wait until next week for the release of the minutes from the last policy setting meeting to see if any of his colleagues agree.

In the past two days, the Pound has found support from a number of key economic reports, which showed persistent inflationary concerns and a falling jobless rate. As a result, UBS AG removed its recommendation to sell the Pound against the Dollar, as the UK currency surpassed the bank’s upper limit to protect against a further downward move.

UK stocks declined for the first time in seven days, as the benchmark FTSE 100 Index slumped 0.7% by midday. The FTSE 100 is still 10% lower than the high on April 15th, amid concern that global growth will come under scrutiny from austerity measures in the Eurozone, while economic data in the U.S and China has, so far, disappointed investors.

Elsewhere yesterday, the Pound rallied despite suggestions that UK house prices will probably fall for the rest of the year, as government spending cuts weigh on consumer confidence and homeowners struggle to repay debt. Fionnuala Earley, senior economist at Royal Bank of Scotland Group Plc, said that “we’re seeing increases in supply, consumer confidence weakening, and we are going to see real squeezes on disposable spending.”

Euro / US Dollar

The Euro encountered strong support below $1.27 against the Dollar yesterday and was able to resist renewed selling pressure, as underlying sentiment towards the single currency remained generally firmer. However, the Euro continued to struggle against the Japanese Yen, as European industrial output rose by less than expected, while Spain’s financial institutions borrowed a record amount from the European Central Bank.

Data Released July 15th

EU 09:00 – ECB Monthly Bulletin

U.S 13:30 – Initial Jobless Claims (w/e 10th July)

U.S 13:30 – Empire State Index (July)

U.S 13:30 – Producer Price Index (June)

U.S 14:15 – Industrial Production (June)

U.S 15:00 – Philly Fed Business Survey (July)

----------------------------------------------------------------------------------------------------------

Market News - July 14th 2010

Foreign Exchange Daily Insight – The Pound rallies against the majors, as inflation declines by less than expected

Sterling / Euro and US Dollar

The Pound rallied for the first time in three days against Dollar yesterday, while the UK currency also peaked above 1.20 versus the Euro, after the latest inflation data beat initial estimates. According to the report from the Office of National Statistics, UK consumer prices rose 3.2% from a year earlier, compared with 3.4% in May, and although the data points to slowing inflation, the higher costs of fuel and food kept the price above the 3% limit.

The Governor of the Bank of England Mervyn King will be forced to write a public letter of explanation to the Chancellor, as some policy makers within the Monetary Policy Committee express concern over the medium-term outlook for inflation. Andrew Sentance broke rank in May and recommended a 25 basis point increase in the benchmark interest rate, currently at a record low of 0.5%.

We will have to wait until the minutes of the June meeting are released next week to gauge if any of his counterparts broke rank and joined him in recommending a shift in policy. However, given the fragile state of the UK economic recovery, further enhanced by the extent of the public spending cuts in the latest emergency budget, it remains unlikely that the Bank of England will switch towards a tightening bias this year, even as persistent inflationary pressures become entrenched in the broader economy.

Nevertheless, the Pound rallied against the majority of the 16 most actively traded currencies, as inflation fell by less than expected in June but the UK currency may struggle to consolidate on the gains, with monthly unemployment figures due for release this morning. George Tchetvertakov, head of market research at Alpari Ltd, said that “although inflation is supposed to be coming down, it’s not falling as expected. We could see sterling strength.”

The persistent inflationary concerns are adding to pressure on policy makers to begin tightening monetary policy, a potential spur for Sterling, which has dropped 6.1% against the Dollar this year. The record low benchmark interest rate may be contributing to the Pound’s weakness and keeping inflation above the bank’s 2% target.

Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC, said that “some of today’s rally in the Pound is likely due to increasing expectation for the need to lift rates given the stubborn performance of inflation.” Government bonds fell yesterday, while UK stocks rallied for a sixth day, as shares in the FTSE 100 Index jumped 1.8%.

Earlier in the day, the British Retail Consortium reported that retail sales rose 1.2% last month from a year earlier, the biggest gain since March. A separate report from the Royal Institution of Chartered Surveyors showed that a gauge of UK house pries fell to an eleven-month low in May, as the number of real-estate agents saying that prices rose exceeded those reporting declines by just 9 percentage points.

Euro / US Dollar

The Euro declined against the U.S Dollar and Japanese Yen yesterday, as Moody’s Investors Services lowered Portugal’s credit rating by two notches to A1 from Aa2, which encouraged a renewed widening of European bond spreads. The ZEW index of investor sentiment was also weaker than expected with a decline to 21.2 for July, from 48.7 the previous month.

The data maintained concerns over a renewed downturn in the Euro-zone economy, although officials are keeping a mood of optimism that a double dip recession will be avoided. The Euro found support at lows near $1.25 against the Dollar on technical grounds and there was some support from a successful Greek debt auction, which boosted confidence.

The Dollar initially advanced against the majority of the major currencies, as China said that it will clamp down on speculative property investment, stoking demand for the U.S currency and the Yen as a hedge against risk. The Dollar failed to consolidate on the gains and weakened through the course of the U.S session, on speculation that U.S corporate earnings will beat analysts’ estimates.

The U.S trade deficit unexpectedly widened in May to the highest level since November 2008, as a gain in imports outpaced export growth. The gap in trade expanded 4.8% to $42.3 billion, despite expectations that the deficit would narrow to $39 billion. The Euro gained towards $1.2630 by the close of trading last night, as improvement in risk appetite continued.

Data Released July 14th

U.K 00:01 – Nationwide Consumer Confidence (June)

U.K 09:30 – Average Earnings (3 Months to May)

U.K 09:30 – Claimant Count (June) – ILO Unemployment (May)

EU 10:00 – Industrial Production (May)

EU 10:00 – Final HICP (June)

U.S 13:30 – Export Prices / Import Prices

U.S 13:30 – Retail Sales (June)

U.S 15:00 – Business Inventories (May)

----------------------------------------------------------------------------------------------------------

Market News - July 13th 2010

Foreign Exchange Daily Insight – The Pound bounces back against the Dollar, amid speculation of a bid for BP assets

Sterling / Euro and US Dollar

The Pound, initially, weakened for a third straight day against the U.S Dollar, dropping under the main support level at $1.5000, as investors become increasingly concerned over the fragile economic recovery in the wake of the fiscal tightening to rein in the deficit. Has the government sacrificed economic stability to reduce the shortfall in the budget?

That’s the question being asked by investors. The wave of optimism surrounding the coalition government has all but ended it would seem, while George Osborne’s emergency budget drew worldwide acclaim with the most dramatic public spending cuts seen since Margaret Thatcher’s government in the 1980s. The Pound subsequently gained 6% against the Dollar since May 20th, but in the past week, the economic data released has increased the prospect of a “double-dip” recession.

The Office of National Statistics reported that Britain’s current account deficit was £9.6 billion in the first three months of the year, the widest its been since the third quarter of 2007. A separate report also showed that the UK economy grew just 0.3% in the final estimate for the first quarter, as an upward revision in services industries was wiped out by a further slump in construction.

Alan Clarke, an economist at BNP Paribas SA, said that “the second quarter figure should be very robust. That quarter will be the peak. The fiscal tightening will start impacting in the fourth quarter, but that’s really a story for next year.” Earlier in the day, the Pound dropped below $1.50 for the first time since July 1st, amid concern that the economic recovery is faltering.

The aneamic growth in the UK economy and the fragile state of the recovery leaves Sterling vulnerable to further downward moves, especially if the data today reveals that inflationary pressures subsided in June, all but diminishing the prospect of a near-term interest rate hike. The Pound was down roughly 0.7% against the Dollar yesterday morning, before a strong recovery through the course of the day.

UK stocks swung between gains and losses following the biggest weekly increase in a year. Shares in BP Plc rallied amid speculation that Apache Corp may buy about $12 billion worth of the oil producer’s assets, as the struggling company looks for reserves to pay for the biggest U.S oil spill in history.

European stocks also advanced, boosting demand for assets correlated with economic growth and the Pound subsequently rallied against the Dollar and the Euro.

The FTSE 100 Index rallied for a fifth straight day, reducing demand for lower-yielding currencies like the U.S Dollar and Japanese Yen, as traders’ appetite for risk resumed. BP Plc had rallied by the most in 19 months at the close of trading last night, amid speculation that the company may succeed in halting the spill off the Gulf of Mexico.

Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd, said that “there’s a slight return to the pro-risk trade. If this risk continues through the earnings season, I would imagine the Pound does quite well. Speculation about a bid for BP, the third largest stock by market value in the British Benchmark Index, may also boost the currency.”

The UK currency rallied after a two-day decline versus the Euro and the Pound also bounced back against the U.S Dollar, as Standard & Poor’s affirmed the UK’s AAA credit rating. The ratings agency maintained its negative outlook on the UK, saying that its projections for the economy are less optimistic than those in last month’s emergency budget.

S&P analysts Trevor Cullinan and David Beers said in a report yesterday that “the coalition government has set out what we view as a strong framework for fiscal consolidation. There is still a material risk that the UK’s net general government debt burden may approach a level incompatible with the AAA rating.”

The Pound rose 0.6% against the Euro yesterday, the most since June 29th, but the UK currency may struggle to consolidate on the gains, amid a host of economic data. The RICS house price balance disappointed investors last night, offsetting a largely positive retail sales report from the British Confederation of Industry. The focus this morning will fall on the latest consumer price index for June, which is expected to show that inflation subsided, reducing the chance of a near-term interest rate rise.

Euro / US Dollar

The Euro retreated against the U.S Dollar yesterday, falling to lows near $1.2550 in early trading, before a modest recovery last night. There was some uncertainty over the U.S corporate earnings data die this week, which curbed risk appetite to some extent, even as global stocks continue to rally. Euro-zone structural concerns also remained a focus through the course of the day, as uncertainty over the bank stress tests on Thursday persisted.

There were some fears that around 15% of banks could be deemed to have failed tests and this will have a very negative impact on the Euro. European finance ministers are under pressure to disclose more about the stress tests being conducted on banks to see whether they could withstand losses if the region’s sovereign debt crisis worsens. The German ZEW index for investor confidence is expected to show that sentiment dipped again in June, which would also tend to undermine the Euro.

A number of analysts at BNP Paribas, RBS Plc and UBS AG were predicting that the Euro would hit parity with the Dollar, as the debt crisis threatened the financial security of the European Union. Mansoor Mohi-uddin, head of foreign exchange strategy at UBS, said that “the negative sentiment was extreme. While we still see a lot of weakness in some euro-zone bond markets, the outright pressure of the dissolution of the currency union has disappeared.”

Data Released July 13th

U.K 00:01 – BRC Retail Sales (June)

U.K 00:01 – RICS House Price Balance (June)

U.K 09:30 – DCLG House Prices (May)

U.K 09:30 – Consumer Price Index (June)

----------------------------------------------------------------------------------------------------------

Market News - July 12th 2010

Foreign Exchange Daily Insight – The Pound declines heavily against the majors on fears of a double dip recession

Sterling / Euro and US Dollar

Following on from last week, the Pound declined to the lowest level in two weeks against the Euro, falling under the pivotal 1.20 level to a low of 1.1887 over the weekend, while the UK currency also suffered losses against all but one of the 16 most actively traded currencies. Signs that the economic recovery is losing momentum is weighing heavily on the Pound, after a report from Halifax Plc showed that UK house prices fell by the most in four months in June, indicating that the fragile recovery was more to do with a lack of property on the market rather than an overall improvement in sentiment.

The Bank of England’s Monetary Policy Committee announced at midday on Thursday that UK interest rates would remain on hold for another month at 0.5%, despite calls from policy maker Andrew Sentance to raise borrowing costs from the record low. The MPC is being cautious in any plans to tighten monetary policy because of the fiscal tightening in the UK and the announcement of the most stringent budgetary cuts in a generation.

The Pound also declined heavily against the U.S Dollar last week, dropping back under $1.50, despite the overall improvement in global risk appetite, which has diminished support for lower-yielding currencies. There has been a wave of optimism engulfing the UK that the Coalition government would reduce the budget deficit while sustaining economic growth but there are signs that investors are becoming skeptical.

The Pound rose 6% against the Dollar over the past 6 weeks, after reaching a low of $1.42 on May 20th. The Bank of England governor Mervyn King endorsed the government’s spending cuts, leading to speculation that policy makers would raise interest rates this year. That idea was further enhanced by Andrew Sentance who has been pushing for a rate increase, but investors will have to wait until later this month for the minutes from the committee meeting, in order to ascertain if any of his colleagues share his views.

The UK Chief Secretary to the Treasury Danny Alexander said on July 5th that government departments agreed to cut spending by a further £1.54 billion, after the budget last month imposed a bank levy and raised sales taxes. The National Institute for Economic and Social Research reported last week that “the UK economy does face headwinds. Fiscal consolidation both in the UK and the euro area will restrict growth in the short-term and there is clearly a risk that this rate of growth will not be maintained through the rest of this year.”

A separate report from the Office of National Statistics showed that UK manufacturing climbed 0.3% in May, after a revised drop of 0.8% in April, which was twice the rate of the decline previously estimated. Weaker economic data may serve to strengthen the Bank of England’s commitment to maintain fiscal stimulus measures, as the governor Mervyn King faces dissent from Andrew Sentance.

The Pound has declined against the lower-yielding currencies, including the U.S Dollar, despite UK stocks rising for a fourth straight day on Friday, as the IMF increased global growth forecasts. Lloyds Banking Group Plc was up 4.3%, as the benchmark FTSE 100 Index rose 1.8% on the day, the biggest three day gain since April.

The International Monetary Fund expressed some concern over the aggressive fiscal tightening with fears that the economy could slide back into a recession over the next few months. The Pound may struggle to stem the losses this week as the latest consumer price data is due for release on Tuesday and is expected to show that annual inflation pressures subsided in May.

Euro / US Dollar

The Euro pushed towards the highest level in two months against the U.S Dollar last week, closing towards $1.27 on Thursday, after a bout of profit taking pushed for stronger gains. As widely expected, the European Central Bank held interest rates at 1% following the latest governing council meeting and the Chairman Jean-Claude Trichet adopted a generally optimistic tone in his press conference.

Trichet is under considerable pressure to do more to shore up investor confidence in the Euro-zone, as government spending cuts and concern about the banking sector clouds the outlook for growth. The IMF said that the ECB may have to step up its purchase of government bonds, which has already split the bank’s 22-member governing council.

The lack of key economic data released on Friday means that technical considerations remained an important influence on Friday, as the Euro approached longer-term downtrend resistance levels following the corrective recovery. There was also speculation that the Euro was being used as a funding currency, while the data on risk reversals suggested that there was still underlying selling pressure on the Euro on structural vulnerabilities.

Data Released July 12th

U.K 09:30 – Currenct Account (Q1)

U.K 09:30 – Final GDP (Q1)

----------------------------------------------------------------------------------------------------------

Market News - July 9th 2010

Foreign Exchange Daily Insight – The Pound declines against the majors, as UK house prices decline, BoE fail to raise rates

Sterling / Euro and US Dollar

The Pound declined to the lowest level in two weeks against the Euro yesterday, falling under the pivotal 1.20 level, while the UK currency also suffered losses against all but one of the 16 most actively traded currencies. Signs that the economic recovery is losing momentum is weighing heavily on the Pound, after a report from Halifax Plc showed that UK house prices fell by the most in four months in June, indicating that the fragile recovery was more to do with a lack of property on the market rather than an overall improvement in sentiment.

Adam Cole, head of global currency strategy at Royal Bank of Canada, said that “the Halifax data certainly doesn’t help sterling. The Pound’s rally since the formation of Cameron’s coalition government has left the currency’s valuation looking “stretched” and may be fading.” The Pound was down 0.7% against the Euro yesterday and 0.5% lower versus the Dollar.

The Bank of England’s Monetary Policy Committee announced at midday that UK interest rates would remain on hold for another month at 0.5%, despite calls from policy maker Andrew Sentance to raise borrowing costs from the record low. The MPC is being cautious in any plans to tighten monetary policy because of the fiscal tightening in the UK and the announcement of the most stringent budgetary cuts in a generation.

The Pound is also 0.3% lower against the U.S Dollar today, dropping back towards $1.51, although is strong support at 1.50 may see a resumption of the upward trend on risk sentiment. There has been a wave of optimism engulfing the UK that the Coalition government would reduce the budget deficit while sustaining economic growth.

The Pound subsequently rose 6% against the Dollar, after reaching a low of $1.42 on May 20th. The Bank of England governor Mervyn King endorsed the government’s spending cuts, leading to speculation that policy makers would raise interest rates this year. That idea was further enhanced by Andrew Sentance who has been pushing for a rate increase, but investors will have to wait until later this month for the minutes from the committee meeting, in order to ascertain if any of his colleagues share his views.

The UK Chief Secretary to the Treasury Danny Alexander said on July 5th that government departments agreed to cut spending by a further £1.54 billion, after the budget last month imposed a bank levy and raised sales taxes. The National Institute for Economic and Social Research reported yesterday that “the UK economy does face headwinds. Fiscal consolidation both in the UK and the euro area will restrict growth in the short-term and there is clearly a risk that this rate of growth will not be maintained through the rest of this year.”

Elsewhere yesterday, a separate report from the Office of National Statistics showed that UK manufacturing climbed 0.3% in May, after a revised drop of 0.8% in April, which was twice the rate of the decline previously estimated. Weaker economic data may serve to strengthen the Bank of England’s commitment to maintain fiscal stimulus measures, as the governor Mervyn King faces dissent from Andrew Sentance.

Elisabeth Afseth, an analyst at Evolution Securities Ltd, said before the BoE announcement that “as long as there’s a chance of a return to a recession, interest rates will remain low. The possibility of more quantitative easing is always there but it’s by no means imminent.”

The Pound declined against the lower-yielding currencies yesterday, including the U.S Dollar, despite UK stocks rising for a third straight day in London, as the IMF increased global growth forecasts. Lloyds Banking Group Plc was up 4.3%, as the benchmark FTSE 100 Index rose 1.8% on the day, the biggest three day gain since April.

However, stocks derailed towards the close of the European session, after a report in the U.S showed that initial jobless claims declined more than economists predicted. The overall improvement in risk appetite may see the Pound remain above the $1.50 support level over the coming weeks but sentiment will remain fragile.

Robert Parkes, a strategist at HSBC Holdings, said that the slump in stocks in the second quarter “was no more than a normal correction often seen in year two of a bull market. With expectations low and valuations extremely cheap, we look for stocks to rally 16% by year-end.”

The International Monetary Fund announced yesterday that it will revise global growth forecasts, reflecting a stronger-than-expected first half of the year. The world economy will is projected to expand 4.6% in 2010, the biggest gain since 2007. That compares with a 4.2% prediction in April.

Euro / US Dollar

The Euro pushed towards the highest level in two months against the U.S Dollar, closing towards $1.27 last night, after a bout of profit taking pushed for stronger gains. As widely expected, the European Central Bank held interest rates at 1% following the latest governing council meeting and the Chairman Jean-Claude Trichet adopted a generally optimistic tone in his press conference.

Trichet is under considerable pressure to do more to shore up investor confidence in the Euro-zone, as government spending cuts and concern about the banking sector clouds the outlook for growth. The IMF said yesterday that the ECB may have to step up its purchase of government bonds, which has already split the bank’s 22-member governing council.

Ken Wattret, chief euro-area economist at BNP Paribas, said that “we’re lacking the sense that the ECB is prepared to do what is necessary. It still seems very uncomfortable with the asset purchases and rising market rates are an additional concern. Monetary policy should be a lot looser.”

U.S initial jobless claims declined 454,000 in the latest weekly data, from a revised 475,000 previously, prompting optimism that the labour market may improve. Regional Fed President Hoenig maintained his view that interest rates should be raised to 1% but markets will not be expecting majority Fed support for a decision to raise rates.

Data Released July 9th

U.K 09:30 – Trade Balance (May)

U.K 09:30 – Producer Price Index (June)

U.S 15:00 – Wholesale Inventories (May)

----------------------------------------------------------------------------------------------------------

Market News - July 8th 2010

Foreign Exchange Daily Insight – Risk appetite makes a comeback

GBP/EUR

The pound edged up versus a broadly struggling euro, but the single currency managed to stay in range of a two-week high hit on Tuesday. The euro has rallied in the past week as investors covered extreme short euro positions.

Optimism that a tight budget announced by the UK coalition last month will improve Britain’s fiscal position has given way to concerns about the impact of tax hikes and spending cuts.

The European Commission reported yesterday that the moves announced by George Osborne in the Budget would be sufficient to bring the deficit down to 2.3% of gross domestic product by 2014-15, in line with European guidelines.

“The current economic circumstances call for a decisive fiscal consolidation,” said Olli Rehn, the EU economic affairs commissioner. “The budgetary targets presented by the UK Government are in line with this strategy.”

The EU nod of approval for the Coalition comes after it criticised Labour in March for putting forward fiscal plans that lacked sufficient ambition.

However, the Commission said it recognised the process of fiscal consolidation would be difficult, citing the 25% reduction in Whitehall budgets over a four-year period as “challenging”.

Standard Chartered Global Research argued yesterday that premature fiscal tightening in Europe had raised the risk of a double-dip recession.

“Exit strategies are the centre of attention. The recent G20 proved to be a meeting where everyone spoke globally but acted nationally,” it said in a note.

“Even without tightening, the shine might have already been taken off global growth as the policy boost starts to wear off.”

EU official data on Wednesday is in line with a previous estimate and follows even weaker growth of 0.1% at the end of 2009.

Growth across the wider 27-nation European Union, which includes Britain and Poland, was also 0.2% from January to March compared to output in the previous quarter, the Eurostat statistics agency said.

The concern is that measures to address the debt crisis could halt economic recovery or cause a double-dip recession.

Howard Archer, chief European economist at financial analysis group IHS Global Insight, said: “Worryingly, there are signs in the very latest survey releases that the heightened euro zone debt crisis and an associated earlier or more aggressive tightening of fiscal policy in a number of countries is starting to weigh down on economic activity.”

While growth should improve in the second quarter, he said the 16-nation euro zone faces “significant obstacles to robust growth”.

Interest rate decisions from the Bank of England and European Central Bank headline the economic calendar today. While any significant changes in the key elements of monetary policy are unlikely in both cases, the outcomes may still prove to stoke significant volatility around currency markets.

Looking first to the UK, the BOE is poised to deliver the first policy announcement since the government unveiled an ambitious emergency budget. The central bank’s statement will be closely scrutinized for its take on the merits of the ruling coalition’s plans and their feasibility. On balance, the embrace of austerity is likely to have dire implications for economic growth considering government spending has outpaced private demand since early 2008, hinting that Mervyn King and company may need to introduce yet more support to prevent a backslide into recession.

On the other hand, the ECB rate decision may prove to be a non event, with policymakers hardly in a position to significantly tinker with monetary policy given the currency bloc’s precarious position as it continues to digest the sovereign debt crisis. That said, traders will pay close attention to any announcements, whether in the statement accompanying the rate decision or Jean-Claude Trichet’s subsequent press conference of new long term repo operations. Last week’s expiry of the ECB’s 12 month repo, a lending facility allowing European banks to secure access to the central bank’s funds at a low interest rate for a year, brought a decline in available liquidity and put upward pressure on short term borrowing costs. Higher borrowing costs seem like just the opposite of what the ECB would like to happen as the currency bloc’s governments lurch toward austerity, so the introduction of new facilities to boost the money supply seem reasonable, with any such outcome likely to weigh on the single currency.

The International Monetary Fund (IMF) has raised its forecast for global economic growth this year, from 4% to 4.5%.

It said the world economy grew strongly in the first part of this year, mainly due to robust growth in Asia.

Developed economies maintained a modest but steady recovery in the same period.

But it warned risks had increased and there had been a setback in progress towards financial stability.

The IMF said that European banks in particular were being affected by the concerns about government debt and so were less willing to lend to each other. Less credit available to the wider economy could undermine the recovery, it argued.

Although contagion to other regions of the world was likely to be limited, there was a risk that Europe’s troubles could have a more substantial impact on global economic growth, it said.

A list of 91 banks that will be subject to “stress-testing” across Europe was released late on Wednesday.

The UK’s big four banks, HSBC, Royal Bank of Scotland, Lloyds and Barclays are on that list, along with fellow major European banks including Deutsche Bank and BNP Paribas.

The tests will assess whether Europe’s banks are able to withstand future financial shocks.

The list is much longer than the original one planned by the EU in June.

The Committee of European Banking Supervisors, which published the list, said collectively the banks represented 65% of the European Union’s banking sector.

Within each member country they represent at least 50% of the banking sector.

The exercise will be completed by 23 July.

GBP/USD

The pound recovered losses against the dollar on Wednesday as a recovery in UK shares helped quell some concerns about global economic recovery.

The pound steadied, but its corrective rally against the U.S. currency lost steam as data on UK jobs growth highlighted the fragility of the employment sector, which is likely to face more pressure when drastic public spending cuts take effect.

The pound has rallied steadily against the dollar since mid May, but technical analysts say the currency is starting to look tired above the recent high, where a number of Fibonacci retracement levels are clustered.

China on Wednesday ruled out the “nuclear” option of dumping its vast holdings of U.S. Treasury securities but called on Washington to be a responsible guardian of the dollar.

In the third in a series of statements explaining its work to the Chinese public, the State Administration of Foreign Exchange sought to allay concerns in the outside world that arise whenever Beijing shifts its holdings of U.S. government debt.

“Any increase or decrease in our holdings of U.S. Treasuries is a normal investment operation,” SAFE, the arm of the central bank that manages China’s official currency reserves, said.

It said it constantly adjusts its portfolio to maximize returns, and any changes to its U.S. Treasury portfolio should be seen in that light and not interpreted politically.

“The U.S. Treasury market is a very important market for China,” the agency said.

China held $900.2 billion in U.S. Treasuries at the end of April, according to U.S. Treasury data released on June 15.

Bankers say China’s total holdings of dollar-denominated assets are much greater, accounting for perhaps two-thirds of its reserves.

EUR/USD

The euro rose to a seven week high against the dollar on Wednesday in technical trading after the breach of a key resistance level prompted some investors who had bet against the single currency to buy to prevent losses.

The euro gained support earlier this week after a solid Spanish syndicated debt sale on Tuesday eased euro zone debt fears and weak US data hit the dollar.

Analysts said the single currency could rise further in the short term as a recent raft of weak US data prompts investors to unwind long dollar positions and short euro positions built up since the start of the year.

German Chancellor Angela Merkel said on Wednesday the euro has stabilized and should be on a stronger foundation than before the Greek crisis thanks to debt reduction measures being implemented in the euro zone.

GBP/High Yielding Currencies

Australian employment figures surprised sharply to the upside, showing the economy added 45,900 jobs in June, easily topping consensus forecasts calling for a 15,000 increase. The unemployment rate held unchanged from the previous month, but the May result was revised lower to 5.1%, the lowest since January 2009 amounting to an overall better outcome than had been expected. Taken together with the previous two months, the June result caps the strongest quarter of employment growth in nearly four years.

Against a background of anticipated rises in Australian interest rates in the coming months and the deal struck by the Australian government with the mining companies and with risk back on the agenda with stock markets making significant gains yesterday, the Australian Dollar soared against all of its major counterparts as traders bet that aggressive hiring will boost wages and put upward pressure on overall inflation.

Indeed, a Credit Suisse index tracking priced-in rate hike expectations shows traders now see a 25% chance that the RBA will increase borrowing as soon as August; the metric previously suggested that traders had written off any near-term tightening since mid-May.

Data Released 8th July

UK 09:30 – Industrial production (May)

UK 12:00 – Bank of England Interest rate announcement

EU-16 12:45 – ECB Interest rate announcement

EU-16 13:30 – ECB Press Statement

UK 15:00 – NIESR GDP Estimate

----------------------------------------------------------------------------------------------------------

Market News - July 7th 2010

Foreign Exchange Daily Insight – Markets waiting on tomorrow’s rate meetings

GBP/EUR

It was a quieter day on the markets yesterday ahead of tomorrow’s Bank of England and European Central Bank rate meetings with risk appetite making a comeback after the FTSE broke four straight days of losses by rising nearly 3% on the day. The US markets followed, albeit after a late sell off but overnight, the Far East markets again reversed the trend and registered further losses. With the commodities markets again losing ground, all eyes are on tomorrow’s rate meetings to give some short term direction to the markets.

In the meantime, the British Chambers of Commerce (BCC) reported that the UK economy continued to grow in the second quarter of this year.

The organisation, which collected data from 5,600 businesses across the country, predicted growth for the three months to the end of June of between 0.6% and 0.7%.

However, serious concerns over sustained recovery remained, it warned.

It found that the service sector presented the biggest worry.

“This is very much a tale of two sectors,” said David Frost, director general of the BCC. “Manufacturing is performing far better than services.”

He added that the BCC was pleased with the coalition government’s first Budget, announced last month.

“What businesses have continued to tell us is they wanted the government to deal with this huge deficit and clearly the emergency budget went down well with our members because action was taken,” he said.

The BCC’s members reported sluggish growth in retail and services, which account for around three quarters of the country’s gross domestic product.

Another, more tangible problem was the rising cost of raw materials, cited by 80% of its manufacturing members as putting pressure on prices.

Set against that, manufacturing export sales rose to their highest level in almost four years, largely thanks to what the BCC called a “more competitive exchange rate”.

Employment also rose within the manufacturing sector.

In a further early sign of a more robust outlook for the manufacturing sector, UK new car sales rose 10.8% in June compared with the same month last year, industry figures have shown, despite the end of the scrappage scheme.

The Society of Motor Manufacturers and Traders (SMMT) said 195,226 new cars were sold in June, adding that the performance was “above expectations”.

June last year was the first full month when new car buyers could take advantage of the scrappage incentive.

The scheme, which offered new buyers a £2,000 discount if they scrapped a car that was more than 10 years old, started on 18 May 2009 and came to an end on 31 March 2010.

The number of staff appointments grew in June, according to a survey by the Recruitment and Employment Confederation (Rec).

It reported a further strong rise in permanent staff placements, with engineering and construction the most sought after.

However, the pace of growth was the slowest for five months.

Rec said more people were available for permanent and temporary work in June compared with previous months.

The report adds to growing fears about the UK’s capacity for employment with the new government expected to cut the number of people employed in the public sector.

“However, with the predictions of up to 600,000 job losses in the public sector, it is still too early to tell how much of a knock-on effect this will have on job creation in the private sector.”

In a sign of possible further tensions to come within the coalition government, the head of the government’s new spending watchdog is to step down after only three months in the job.

Sir Alan Budd was appointed in May 2010 as the first chairman of the Office for Budget Responsibility (OBR).

The function of the office is to provide the government with independent forecasts of UK economic growth and public deficits.

Its first report was relied upon by Chancellor George Osborne in the preparation of his June Budget.

A Treasury spokesperson said there was nothing unexpected in the move “He was appointed to provide forecasts for the June Budget and advice on the creation of the permanent OBR.

“He has established the OBR as a credible and independent forecaster and the Chancellor is grateful for his contribution.

“The Treasury will seek to ensure continuity in recruiting his successor.”

It has also become clear that the two other outside experts at the OBR, Geoffrey Dicks and Graham Parker, are also on three month contracts.

The Treasury could not confirm whether they would be staying beyond August.

Pending the introduction of legislation by the new government, the OBR is operating on an interim basis with the support of staff seconded from the Treasury.

Labour peers suggested in parliament that Sir Alan had fallen out with ministers over the degree of independence given to the OBR.
One, Lord Eatwell, alleged a “disagreement” had led to Sir Alan’s departure.

The Labour peers also asked why no successor had been named.

UK retail prices increased in June at the slowest annual pace in three months as the effects of fluctuations in commodity and currency costs abated, the British Retail Consortium said.

Prices of goods in stores rose 1.5% last month from a year earlier, compared with a 1.8% gain in May, BRC said in an e-mailed statement. That’s the slowest pace of increases since March. On the month, prices fell 0.1%.

“The era of shop-price volatility seems over for now,” Stephen Robertson, director general of the BRC, said in the statement. “Low and stable inflation appears likely for the rest of the year. In the face of weak demand, retailers will continue to use widespread discounts and promotions.”

GBP/USD

Further evidence that the economic rebound in the US is losing momentum led to muted demand for the dollar as a ’safe haven’ currency.

The US service sector grew in June, but at the slowest pace since February, according to a survey by the Institute for Supply Management (ISM).

It was the sixth month in a row that the key component of the US economy expanded.

The report followed a flow of recent economic reports that have raised fears the US recovery is faltering.

The most important, released on Friday, showed a fall of 125,000 in non-farm jobs in the country.

The ISM, a trade group of purchasing executives, said its service sector index fell to 53.8 from 55.4 in May. A reading above 50 indicates expansion in the sector, while a reading below 50 indicates shrinkage.

One analyst, Charles Lieberman, at Advisors Capital Management, told the Reuters news agency that the news did not suggest the US economy was heading back into recession.

“It’s consistent with the general tone of data, suggesting that the pace of growth is a little more moderate. It’s certainly not suggestive of the double-dip scenario that some people are pushing,” he said.

The ISM’s data on employment was less positive, however.

That component fell to 49.7 from 50.4, confirming the latest non-farm payroll report on Friday.

GBP/High Yielding Currencies

The Australian dollar registered sharp gains yesterday on the back of comments from the Royal Bank of Australia which the markets took to suggest that further interest rate rises are ‘around the corner’ after the RBA held interest rates unchanged at 4.5% on Tuesday.

The Australian dollar also gained on the news of the deal struck between the Australian government and the mining companies.

However, the Australian dollar remains sensitive to any fluctuation in demand from China.

Kenneth Rogoff, ex-chief economist for the IMF, told Bloomberg Television in Hong Kong that the denouement could prove abrupt after such a torrid boom. “You’re starting to see that collapse in property and it’s going to hit the banking system,” he said.

The government is trying to deflate the housing market gently, mostly using tools known as “financial repression” rather than Western style rate rises. Xu Shaoshi, land minister, said sales are already dropping. “In another quarter’s time or so, the property market will probably come to a full correction and prices will fall. It’s hard to say to what extent they will fall,” he said.

At the same time, China is shifting its foreign reserve strategy, rotating out of Europe and into Japanese government bonds. Japan’s finance ministry said China bought $6bn (£3.9bn) of bonds from January to April, a record pace of accumulation.

Analysts say Beijing is hunting for fresh places to park its reserves after losing confidence in euro zone debt.

Data Released 7th July

EU-16 10:00 – Final GDP (Q1)

GER 09:00 – Unemployment

GER 11:00 – Industrial Orders (May)

----------------------------------------------------------------------------------------------------------

Market News - July 6th 2010

Foreign Exchange Daily Insight – Sterling, Euro, US Dollar, Australian Dollar and New Zealand Dollar

GBP/EUR - GBP/USD

With the U.S market closed yesterday for Independence Day, market movements were largely subdued. Sterling dropped back from Friday’s two month high against the U.S Dollar – however is still holding above $1.5000 support.

Sterling also deteriorated against the Euro and moved uncomfortably close to the 1.2000 support area following a disappointing CIPS/Markit services PMI report released yesterday morning. The report confirmed that Services PMI fell in June for the third time in four months.

Combined with last week’s Manufacturing Index, these latest results point towards a potential deceleration in growth for the U.K during the second half of this year.

In complete contrast to the PMI survey, The British Chambers of Commerce’s (BCC) Quarterly Manufacturing Survey released overnight confirmed that the U.K services sector for Q2 has grown at its fastest pace in almost two years – with the manufacturing sector growing strongly.

The business lobby’s chief economist, David Kern confirmed that the survey pointed to economic growth of 0.6-0.7% during Q2. However, he warned that this level of growth was unlikely to be sustained, as an impending clampdown on government spending risked plunging the economy into a double-dip recession:

“We now have in place very tight fiscal policy for the next few years. We think it’s necessary, but this means the risk of a double-dip recession is greater and makes it more necessary for the Bank of England to keep interest rates low.”

Market movements so far this morning have been largely range-bound as markets look for fresh direction.

Traders are remaining concerned about the strength of the U.S recovery, with focus falling very much on the risk that the U.S recovery seems to be running out of momentum. The U.S are due to release their latest ISM services report this afternoon which is likely to be watched closely.

There is no data of note from the Euro-Zone today, and markets will look toward Final GDP data for Q1 due to be released tomorrow morning.

The European Central Bank and the Bank of England are due to hold their monthly policy meetings on Thursday this week.

EUR/USD

The Euro has edged higher against the U.S. dollar this morning, amid market caution as fears remain over the health of the Euro-Zone banking sector and a slowdown in the rate of global economic growth.

The single currency traded up towards $1.2600 during Asian trading. With support remaining near $1.2530, and resistance at $1.2620.

GBP/AUD – GBP/NZD

The Reserve Bank of Australia opted to leave interest rates unchanged at 4.5% as expected. The comments that followed the meeting were less dovish than had been expected leaving the AUD with a firmer tone. The Australian Dollar has strengthened slightly on the back of the decision falling back below the $1.8000 level.

The New Zealand Dollar has also strengthened against the Pound this morning trading back below $2.2000.

Data Released 6th July

UK 00:01 – BCC Quarterly Manufacturing Survey (Q2)

AUS 05:30 – RBA Interest Rate Announcement

U.S 15:00 – ISM Non Manufacturing PMI / Business Activity (June)

----------------------------------------------------------------------------------------------------------

Market News - July 5th 2010

Foreign Exchange Daily Insight

GBP/EUR

Following on from last week, Sterling is currently holding above key support levels at $1.5000 against the U.S Dollar, and 1.2000 against the Euro.

The U.S Dollar remains under pressure this morning after data released from the States towards the end of last week raised further concerns about the strength of the economic recovery for the second half of this year.

Major currency pairs were mostly range-bound during the weekend, trading in tight ranges ahead of today’s U.S Independence Day holiday – It is a relatively light week in terms of economic data from the States this week, which could limit activity to some extent.

In the Euro-Zone, final Q1 GDP data for the Euro-Zone is due to be released on Wednesday morning, and after Q1 GDP data from Ireland came in stronger than expected last week, the main question for market analysts is whether we could see an upward revision.

The European Central Bank (ECB) are due to hold their monthly policy meeting on Thursday. Interest rates are expected to remain on hold at 1%, and the press conference which accompanies the meeting is anticipated to indicate that the Central Bank are likely to leave their current policy unchanged. In addition to the policy meeting, a number of ECB members, including Trichett are also due to speak this week.

PMI data released this morning has confirmed that growth in Europe’s services and manufacturing industries slowed for a second month in June – adding to signs that recovery within the Euro-Zone is losing momentum.

The Bank of England are also due to meet this Thursday. Interest rates are expected to remain on hold and no changes to policy are anticipated.

Minutes of their previous policy meeting held in June, showed that differences of opinion with regards to the risk of inflation are beginning to emerge amongst MPC members.

The minutes confirmed that policy makers previously voted 7-1 to keep interest rates on hold for the 15th month in a row – with one member of the MPC, Andrew Sentence voting for an interest rate rise.

This was the first call for a U.K rate rise by an MPC member since August 2008, and surprised economists, who expected another unanimous decision. The Bank of England also decided not to inject any more money into the U.K economy under its policy of quantitative easing (QE).

Market analysts are now expecting dissenter Andrew Sentence to opt for a rate increase again this month. However, most the majority of policy makers are under the opinion that the level of spare capacity that currently exists in the economy should bear down on price pressures over the medium term, allowing the CPI rate to fall back below target and therefore the majority believe that interest rates should remain on hold.

EUR/USD

The Euro has paused overnight after last week’s boost from unwinding of short and leveraged positions. The single currency eased during Asian trade to $1.2540, with support seen around its 55-day moving average, currently near $1.2530.

Last week, the euro gained 1.5% against the dollar, reversing a loss from the previous week and gaining greater distance from June’s four-year low at $1.1876. There is resistance at around $1.2620.

The euro’s rise late last week stalled at USD 1.2613, just short of that retracement level.

Data Released July 5th

EU-16 08:58 – Markit Services PMI (June)

U.K 09:30 – CIPS Services PMI

EU-16 09:30 – Sentix Investor sentiment (June)

EU-16 10:00 – Retail Sales (May)

U.S – INDEPENDENCE DAY

----------------------------------------------------------------------------------------------------------

Market News - July 2nd 2010

Foreign Exchange Daily Insight– Dollar looses further ground against Sterling in the lead up to this afternoon's Non-Farm Payrolls report

GBP/EUR

Sterling has picked up again against the U.S Dollar during trading this morning with interbank trading up towards $1.5200, and despite falling almost 1.5% against the Euro on Wednesday, the Pound is still holding above the pivotal 1.2000 level against the euro.

These movements make it an ideal opportunity for clients interested in purchasing the Euro or USD from Sterling to consider securing a rate of exchange.

World stock markets fell during trading yesterday following reports that the pace of growth in Chinese manufacturing slowed during the month of June. Meanwhile, the Euro-Zone also reported its second successive monthly fall in manufacturing growth.

The outcome of these reports has increased concern amongst investors by raising further doubts over the strength of the global recovery. European stock markets closed down between 1.8% and 3% following the news, and in the U.S the Dow Jones Industrial Average also fell during early trading.

CIPS data for the U.K released yesterday morning confirmed that Manufacturing is growing at a slower level than the previous report for May, but also confirmed that the U.K appears to be fairing slightly better than the U.S and the Euro-Zone.

Recent data from the United States (in particular results from the housing sector) have disappointed – raising further concerns about the strength of economic recovery going forward. Market focus today will fall on this afternoon's Non-Farm Payrolls report and the outcome of this report is likely to set the tone for the week ahead.

A weak labour market report is anticipated, reflecting the fact that many temporary workers taken on for the U.S census are now being laid off. Forecasts predict a drop of 110,000 which would mark the first drop in employment this year.

Other data of note to watch today include Euro-Zone unemployment and U.S factory orders for the month of May.

EUR/USD

After seeing steady gains throughout trading yesterday, markets are becoming even more cautious over the outlook for the U.S economy. The euro remained firm versus the U.S Dollar throughout overnight trade.

Activity, however, was described as ‘subdued', with traders unwilling to put on large positions ahead of this afternoon's release of the key U.S Non-Farm payrolls report for June.

A negative result for unemployment in the U.S is likely to weigh even further on the Dollar – the rate is currently edging towards the next key resistance area at $1.2570.

GBP/AUD

The Australian Dollar found some support overnight as a planned mining tax was reworked, with major concessions given to the industry. However the market is still trading towards the top end of the recent range. There is resistance around the 1.8000 level.

ADDITIONAL NEWS:

Manufacturing growth has also been affected negatively in other parts of Asia, with India's rate of growth down from a two-year high and South Korean manufacturing growing at its slowest rate in six months.

Data Released July 2nd

EU-16 10:00 – PPI (May)

EU-16 10:00 – Unemployment Rate (May)

U.S 13:30 – Non-Farm Payrolls Unemployment rate/average earnings (June)

U.S 15:00 – Factory Orders (May)

IRE 16:30 – Exchequer Returns (to end June)

----------------------------------------------------------------------------------------------------------

Market News - July 1st, 2010

Foreign Exchange Daily Insight � The pounds gives up recent gains

GBP/EUR

The pound slipped against the Euro on Wednesday, losing more than 1.5% during the day as the single currency was boosted by a smaller than expected takedown of three-month funding.

Comments from a Bank of England policymaker that the economy may still fall back into recession also weighed on the pound, analysts said.

Expectations that the Euro gains would be short lived highlighted the view that the Euro carries a higher risk premium over the pound due to concerns about the Euro zone banking sector and debt problems among some members of the currency bloc.

The euro has lost more than 8% so far this year against the pound.

�There seems to be a lot less risk associated with the UK in general, compared with the euro zone,� said Audrey Childe-Freeman, currency analyst at Brown Brothers Harriman.

On Wednesday, the pound was also hit by weak UK housing figures. The Nationwide building society said UK house prices rose just 0.1% on the month in June, less than the 0.5% rise in May.

Adam Posen, a member of the Monetary Policy Committee of the Bank of England said at a conference in London yesterday that although the UK economy was �tentatively in the recovery state,� a double-dip recession was still possible, making it unlikely he would vote for a rate rise in the immediate future.

�With the strong recovery outside of Western Europe proceeding on one side, and the coming austerity at home and in the euro area on the other, I think the UK is still poised between two very different outcomes,� he said.

Economists do not expect the MPC to raise rates from the current historic low of 0.5% until late this year at the earliest. Some believe a further loosening of monetary policy, in the form of more quantitative easing could be a possibility if the recovery loses steam leading to fresh selling pressure on the pound.

Separately Fitch, the ratings agency, said that although a global recovery was under way, the risks of it being derailed were intensifying. �The outlook for the global economy and sovereign credit is at a critical and uncertain juncture. Economic data show the global recovery is strengthening, but concerns over sovereign debt sustainability in some euro area countries and renewed market volatility raise the risk of a double-dip recession,� it said in a report.

Fitch said that despite the crisis in the euro zone, the risk of a break-up in the region in the medium term was low.

The ECB lent banks €131.9bn (£107.7bn) in three-month funds on Wednesday in an auction that was seen by economists as a test of the sector's health.

With the amount below the €150bn-€250bn expected, concerns about bank finances which have rocked stock markets and weighed on the euro this week were temporarily eased.

The ECB said 171 banks borrowed funds at a flat rate of 1% in the operation. High demand would have sent a warning signal since the ECB is charging a relatively high interest rate compared to market rates.

Banks in countries including Greece, Spain and Portugal are increasingly dependent on the ECB for funding as they struggle to borrow from others due to concerns over debt and public finances.

However, it was still the highest ever borrowed in a three-month operation.

Gilles Moec, an economist at Deutsche Bank, said: �It's definitely a good sign and means there is still some interbank lending occurring within the European money market.

�We still have to wait until Thursday to get the full picture.�

Today, euro zone banks will have to repay €442bn in 12-month funds. The one year loan's were the ECB's first and introduced to fight the financial crisis last year. They are not set to be renewed.

Moody's said last night that it may strip Spain of its AAA rating, warning that the country's austerity measures and higher debt costs �will likely depress growth.�

It is a bitter pill for Madrid, which is being punished for doing exactly what the EU demanded. The jury is out on Europe's strategy of wage cuts � �internal deflation� � for boom-bust states in distress.

GBP/USD

The dollar is growing ever more dependent on its appeal as a safe haven currency, for better or worse. On the back of a seven month advance, the burden to maintain the dollar's steady climb has grown to be exceptionally arduous.

Looking at the fundamental drive for such a trend, many of the bullish components of the dollar's climb have receded or completely vanished. At the beginning of the year, the comparatively strong forecasts for economic expansion from the world's largest economy had provided the dollar with a long-term platform for strength.

Covering a slightly more restrained time frame, interest rate expectations, though reserved put the Fed on track to instigate a hawkish regime well before its ECB and BoE counterparts, and providing the real momentum for the dollar's climb was the building fear of an impending second financial crisis. In recent weeks, this tidy checklist has grown to be more speculative conjecture than fundamental forecast.

The US housing market has taken a steep dive and this Friday's Non Farm Payrolls, the key unemployment data in the US are expected to confirm reserved expectations for a recovery in employment and the consumers' contribution to economic activity. Interest rates have been fully undermined by the Fed's insistence that rates be held exceptionally low for an �extended� period and complete absence of inflation pressures. Now, even the currency's risk appetite appeal may be on the decline. Should financial uncertainty in the Euro zone and China dissipate, speculative appetites could drown the dollar.

GBP/High Yielding Currencies

The pace of Chinese manufacturing growth slowed in June as government steps to cool the property market and curb bank lending combined with a faltering global recovery to dampen sentiment

Qu Hongbin, chief economist for China at HSBC, said the economy was clearly cooling after year on year growth of 11.9% in the first quarter.

�But fears about hard-landing are overplayed. We expect China to achieve around 9% growth in the second half, underpinned by massive ongoing investment and robust private consumption,� he said.

Zhang was commenting on the official Purchasing Managers' Index, which fell to 52.1 in June from 53.9 in May. The reading, the weakest since February, fell short of the median forecast of 53.1 in a Reuters poll of 10 economists.

A separate survey compiled for HSBC fell more steeply to a 14-month low of 50.4 from 52.7 in May. It still marked modest overall expansion, but output and new orders dropped outright for the first time since the depths of the global downturn in March 2009.

The PMIs are designed to provide a timely snapshot of business conditions in manufacturing.

According to the National Bureau of Statistics, the drop in the official PMI reflected the impact of policy tightening as well as a �grim� outlook for exports.

The debt woes rattling the Euro zone, China's recent abolition of some export tax rebates and the prospect of increased trade friction were all weighing on exporters.

Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong, said slower growth in the second half was inevitable as the initial boost from last year's 4 trillion Yuan ($585 billion) stimulus package starts to fade and policy tightening bites.

�How sharp this slowdown will be will depend heavily on what happens to Chinese exports. Exports across the region have continued to post strong growth so far this year, but recent events in Europe clearly represent a major downside risk in the months ahead,� he said in a note.

Any slowdown in China will have a negative effect on the high yielding currencies and, in particular, the Australian dollar as Australia is a major raw materials supplier to China and the Far East as a whole.

On a more positive note for the Australian dollar, Australia's government and key mining companies are on the brink of a framework agreement on a mining tax compromise, the Sydney Morning Herald reported, quoting sources with knowledge of the talks.

Based on the proposed deal, the government has given ground on the headline 40% tax rate and the new trigger point for the tax would be around 12% of return on capital, linked to bond yields. That would be an increase from an initial proposal for about 5%. The tax deal would also give miners a break on retrospective projects, enabling them to roll lucrative iron ore operations in the Pilbara and coal mines on the east coast, into the new tax regime at market value.

Neither side made any comment on the report.

An agreement would remove uncertainty in the market and any watering down of the tax proposal is considered positive for investments and hence the Australian dollar, traders say.

The proposed mining tax threatens more than $20 billion in investment, according to mining companies, but no major project has yet been scrapped and several have actually been advanced since the tax was unveiled on 2 May.

Analysts say that any firm deal would be a positive for mining shares as it removes a key risk factor while any easing in terms of the tax would be a clear positive as investors have already priced in the worst-case scenario.

Data Released 1st July

UK 09:30 � Manufacturing PMI (June)

US 13:30 � Initial Jobless claims (June)

US 15:00 � Pending Home Sales (May)

US 15:00 � Auto Sales (June)

----------------------------------------------------------------------------------------------------------

Analysis provided by TorFX - Please follow this link for more Sterling Currency Forecasts