US and Europe focus of currency markets

Published: 06 February, 2012

Positive US unemployment data and the ongoing Euro zone Greek refinancing, was the currency market focus towards the end of last week.

Currency rates - January 18

EURO/GBP - 1.2048

US$/GBP - 1.5772

CHF/GBP - 1.4551

CAN$/GBP - 1.5704
AUS$/GBP - 1.4706
ZAR/GBP - 11.968
JPY/GBP - 120.83
HKD/GBP - 12.2310

NZD/GBP - 1.8988

SEK/GBP - 10.601

AED/GBP - 5.7921

US$/EURO - 1.3082

INR/GBP - 76.86

The only significant UK data released was the Services Purchasing Managers Index (PMI) which came in much better than expected. Risk appetite increased in the US following the release of the unemployment data, which resulted in sterling weakening against the Canadian Dollar, New Zealand dollar and Australian dollar. This week in the UK we have the release of manufacturing data, but the main focus will be on Thursday where we will discover if the Bank of England will expand the asset purchase program with a further round of quantitative easing. The expectation is an additional £50 billion which will increase the programme of quantitative easing from £275billion to £325billion. The official bank rate is widely expected to remain at 0.5%.

On Friday a Greek government spokesman said that a basic outline of a deal on the Greek debt restructuring has been agreed and that talks were now underway for the second EU/IMF financing package. Greece will remain the main focus in the Euro zone this week with the whole world looking to see if and how the ongoing problems will be resolved. The European Central Bank's interest rate decision will be announced on Thursday with the general consensus suggesting that the rate will remain at 1.00%.

Much better than expected US unemployment data was released on Friday, with unemployment falling to the lowest level since February 2009. The US Institute for Supply management (ISM) Non-Manufacturing PMI also came in better than expected which weakened the dollar as risk appetite drove the market once more. This release of positive data suggests that there are better long term prospects for the US economy and potentially no need for more quantitative easing.

Elsewhere, on Friday the Australian dollar and the New Zealand dollar strengthened on the back of the positive global economic outlook following the better than expected US unemployment data whilst the yen weakened. The Swiss government said that the Swiss franc cap of at least 1.20 per euro will be enforced at an absolute minimum. Canadian unemployment data came in worse than expected seeing the jobless rate rise to nine month high. Out this week, we see the release of the Australian interest rate decision which is currently expected to be reduced from 4.25% to 4.00%. There is also the release of the Australian, Canadian and Chinese trade balance data and unemployment data in New Zealand.

Supplied by Nick Ryder of Smart Currency Exchange, the currency partner to Harpers Wine and Spirit who have teamed up with Smart to provide readers with a free bespoke currency service. Go to www.smartcurrencybusiness.com/winespirit for more information or call on 0207 898 0500.

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