Foreign Exchange Insight : Positive US Income and Household Expenditure Data Pushes EUR USD Rate to a 7-Week High, While GBP AUD and GBP NZD Rates Suffer

Published: Tuesday, 30 August 2011 06:34 BST - Written by John Cameron

STORY LINK Foreign Exchange Insight : Positive US Income and Household Expenditure Data Pushes EUR USD Rate to a 7-Week High, While GBP AUD and GBP NZD Rates Suffer

The Pound Euro exchange rate (GBP EUR) is 1.1297. The Pound Dollar exchange rate (GBP USD) is 1.6407. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5374.

The major mover on the currency markets during yesterday’s session was the US Dollar, which continued to weaken against the other majors.

The move against the Greenback began on Friday afternoon when the Federal Reserve downgraded their projection for US GDP growth for the remainder of 2011 and into 2012. The Dollar continued to leak support during yesterday’s session; this time it was relatively strong US data which drove the move, with US Personal Spending figures showing a monthly bounce in American household expenditure of 0.8% in July following a contraction of 0.1% in June. July’s US Personal Income figure, also released yesterday, showed a slight improvement on June’s counterpart figure of 0.2% to print at 0.3%.

The positive US data caused institutional investors to shift out of defensive positions, (i.e. government bond holdings), in order to hunt out a more rewarding home for their funds in the shape of equities. This move caused the broad-based S&P 500 share index - a benchmark for global stocks - to close 2.83% up on the day yesterday. Asian share markets have mirrored these gains overnight and European indices registered similar gains yesterday, (although London’s FTSE 100 was closed for a public holiday).

The increase in appetite for risk in the markets has seen heavy and sustained support for the high-yielding currencies over the past 24 hours, with the Australian Dollar making a strong move forward yesterday, leading the GBP AUD rate to further retrace from its near-term high of 1.6389 to trade down to 1.5357 overnight. The GBP NZD and GBP ZAR rates have suffered similar losses.

Yesterday’s move against the US Dollar saw the EUR USD rate break to its highest level since 5th July. This move was also partly driven by support for the Euro, with the market responding to positively noises from Eurozone policy-makers at yesterday’s special meeting of European Parliament’s Economic Affairs committee. If Eurozone leaders continue to ‘say the right thing’ and global risk sentiment remains buoyant, then the EUR USD rate could make a run at its 4-month high of 1.4696 later in the week.


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