Morning Foreign Exchange Market Report : GBP/EUR Rate Drops to 5 Month Low In Spite of Eurozone Debt Worries, While the US Currency Makes Gains and the AUD Powers Forward

30 Mar 2011 at 6 AM - Written by John Cameron

STORY LINK Morning Foreign Exchange Market Report : GBP/EUR Rate Drops to 5 Month Low In Spite of Eurozone Debt Worries, While the US Currency Makes Gains and the AUD Powers Forward

The Pound Euro exchange rate (GBP/EUR) is 1.1356. The Pound Dollar exchange rate is 1.6003. The Australian Dollar US Dollar exchange rate (AUD/USD) is 1.0327.

There were significant moves in the currency markets during yesterday’s session as market participants reacted to a heavy schedule of data releases. The most significant of these releases proved to be the US Consumer Confidence Survey for March which emerged at the start of yesterday’s North American session.

The Survey showed a significant drop in US Consumer Confidence levels from 72.0 in February to 63.4 this month; this is the lowest reading for this survey in three months, causing alarm bells to ring for investors who considered the world’s leading economy to be out of danger. The figure caused a dip in risk sentiment which benefited the Dollar, causing the GBP/USD exchange rate to trade down to within 6 pips of an 8 week low.

However, significant overnight gains for Asian equities markets has put yesterday’s Dollar gains at risk and it looks possible that today will see a weakening of the Greenback following the rejection of the near-term low on GBP/USD yesterday.

Turning to the Eurozone, German CPI Inflation data for this month showed that prices are rising at an annualised rate of 2.1% in Europe’s powerhouse economy. This figure was a touch lower than had been expected, but is still likely to prove too high for the ECB to tolerate given that the recent spike in oil and commodity prices is yet to fully register in the numbers. It will be a massive surprise if the ECB does not raise interest rates at next week’s meeting.

Meanwhile, elsewhere in the markets, the AUD/USD rate has reached its highest level in history, touching 1.0333 within the last two hours. With Australian interest rates remaining close to 5% and the Greenback still fulfilling its safe-haven remit, the record level on AUD/USD shows that risk appetite is returning to the markets on the day.

Turning to GBP/EUR, ordinarily an upward revision to the final UK Q4 GDP figure from -0.6% to -0.5% combined with a new downgrading of Greece and Portugal’s debt by S&P would cause the GBP/EUR rate to shoot up. However, the market hardly flinched when the above information was released yesterday. Indeed, GBP/EUR traded down to its lowest level since October. According to the old market adage, ‘what should go up and doesn’t go up, can only come down’. If this holds true, then the Pound is in for a very difficult time over the next few sessions.

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