By Peter Lavelle
Welcome to the Pure FX account of the latest changes in the foreign exchange rates.
This is intended as a brief guide to movements in the exchange rates overnight, to put you in the best position for when you exchange currencies.
US Dollar
One more punch in the gut for the US recovery! The US dollar climbed against both the pound and euro last night, as a disappointing New York Empire State manufacturing index prompted risk aversion on the foreign exchange market. (This is where the markets sell risky assets in favour of those guaranteed to make a return, like US government bonds.)
The NY index fell to –5.85 this month against forecasts for +6.5, telling us there was a sharp decline in activity.
UK Pound
Elsewhere, the pound also came under pressure against the Australian and New Zealand dollars, in spite of upbeat unemployment data from the UK yesterday.
Unemployment in the UK fell to 8.0% in the three months to June, down from 8.2% in Q1. Some 46.0k new jobs were created in this period, putting UK unemployment lower than both the Eurozone and US.
But in spite of this, the markets were unimpressed by the figures, perhaps because they jar with the UK’s growth data. The UK contracted -0.7% in the last three months, and some –1.4% in the last nine. How then can employment be rising?
This is something the Bank of England calls a “genuine economic puzzle,” and perhaps explains why, even though good unemployment data should lift the pound, the markets didn’t take the bait.
Last but not least, UK inflation jumped last month to 2.6%, ahead of forecasts it would fall to 2.3%. This might normally provide a pound boost, as the markets price in a rise in interest rates, which in turn would raise the return on UK investments.
However, in this case there’s no hope the Bank of England will raise interest rates. This is because they need to stay low to encourage borrowing, and so aid economic growth. Hence, the higher inflation figure did little to aid the pound.
How This Affects You
A lower pound is good news for people planning to relocate to the UK from abroad. This is because, if you start with US or Australian dollars, you can then exchange them for more UK pounds. This is beneficial if you want to buy a house in the UK, or enjoy a larger savings total in your UK bank account.
What’s Coming Up Next
Today, the latest UK retail sales data is released. This will give us an insight into whether UK consumers feel more confident, and whether there as an Olympic fillip over the summer. If so, we might expect a rising pound.
In the US meanwhile, the Philadelphia Fed releases its manufacturing index. This will tell us whether the NY Empire State decline was just a glitch, or whether the US is in for a sustained period of manufacturing slowdown. If the latter turns out to be true, the US dollar could further climb.
Find Out More
I do hope this post has been useful. To find out more:
To learn how we can help you transfer money abroad, visit our Currency for You page.
Sign Up to Our Newsletter to receive a monthly update of what the pound’s been up to.
Get more guidance with our Foreign Currency Exchange Advice articles.
16 August 2012
US Manufacturing Decline Sparks Foreign Exchange Risk Aversion
By Peter Lavelle
Welcome to the Pure FX account of the latest changes in the foreign exchange rates.
This is intended as a brief guide to movements in the exchange rates overnight, to put you in the best position for when you exchange currencies.
US Dollar
One more punch in the gut for the US recovery! The US dollar climbed against both the pound and euro last night, as a disappointing New York Empire State manufacturing index prompted risk aversion on the foreign exchange market. (This is where the markets sell risky assets in favour of those guaranteed to make a return, like US government bonds.)
The NY index fell to –5.85 this month against forecasts for +6.5, telling us there was a sharp decline in activity.
UK Pound
Elsewhere, the pound also came under pressure against the Australian and New Zealand dollars, in spite of upbeat unemployment data from the UK yesterday.
Unemployment in the UK fell to 8.0% in the three months to June, down from 8.2% in Q1. Some 46.0k new jobs were created in this period, putting UK unemployment lower than both the Eurozone and US.
But in spite of this, the markets were unimpressed by the figures, perhaps because they jar with the UK’s growth data. The UK contracted -0.7% in the last three months, and some –1.4% in the last nine. How then can employment be rising?
This is something the Bank of England calls a “genuine economic puzzle,” and perhaps explains why, even though good unemployment data should lift the pound, the markets didn’t take the bait.
Last but not least, UK inflation jumped last month to 2.6%, ahead of forecasts it would fall to 2.3%. This might normally provide a pound boost, as the markets price in a rise in interest rates, which in turn would raise the return on UK investments.
However, in this case there’s no hope the Bank of England will raise interest rates. This is because they need to stay low to encourage borrowing, and so aid economic growth. Hence, the higher inflation figure did little to aid the pound.
How This Affects You
A lower pound is good news for people planning to relocate to the UK from abroad. This is because, if you start with US or Australian dollars, you can then exchange them for more UK pounds. This is beneficial if you want to buy a house in the UK, or enjoy a larger savings total in your UK bank account.
What’s Coming Up Next
Today, the latest UK retail sales data is released. This will give us an insight into whether UK consumers feel more confident, and whether there as an Olympic fillip over the summer. If so, we might expect a rising pound.
In the US meanwhile, the Philadelphia Fed releases its manufacturing index. This will tell us whether the NY Empire State decline was just a glitch, or whether the US is in for a sustained period of manufacturing slowdown. If the latter turns out to be true, the US dollar could further climb.
Find Out More
I do hope this post has been useful. To find out more:
To learn how we can help you transfer money abroad, visit our Currency for You page.
Sign Up to Our Newsletter to receive a monthly update of what the pound’s been up to.
Get more guidance with our Foreign Currency Exchange Advice articles.