The Latest Market Commentary as on 11th May, 2011

I am pleased to provide the latest Pure FX market commentary. Detailing the main factors that have been affecting currency exchange rates recently.

Sterling overview

Sterling took a bit of a battering last month following a string of lopsided economic releases. Important sectors including Services and Manufacturing showed growth but both came in below market expectations – contributing to sterling’s fall against currencies including the euro.
In spite of this George Osborne had reason to breathe a huge sigh of relief. Britain returned to economic growth with GDP figures for the first quarter 2011 arriving at +0.5%. This indicates that Osborne’s budget cuts are working - stimulating growth while slashing Britain’s mammoth public deficit.

The Bank of England meanwhile decided to hold interest rates at 0.5%. This was forecast on the markets but has also contributed to sterling’s decline. Each month that the BoE holds interest rates is another month in which investors receive smaller returns – hence making the pound less attractive.

Sterling weakness is of course brilliant for people bringing funds back from the continent and elsewhere. As always for a more in-depth assessment of your particular currency feel free to speak to a currency dealer at Pure FX.

Euro

The euro remains the biggest climber in recent weeks in spite of a flood of negative headlines – gaining several percent against sterling. The single biggest reason for this climb has been the European Central Bank’s decision to raise interest rates to 1.25%. This prompted the markets to plough cash into the euro since higher interest rates mean better returns.

In fact this climb has only halted last week after the ECB’s decision to not increase rates, proving a great disappointment to investors that had factored in another rise.

In other EU news Portugal became the third euro member to seek a bailout – receiving €78bn from the ECB-IMF. This weekend meanwhile rumours have been rife that Greece could exit the euro. It hence seems the EU peripheral crisis could continue for months to come.

In GDP meanwhile the EMU expanded 2.0% in the first quarter 2011 – providing further fuel to the euro’s fire.

US dollar

In economic terms the US continued to resemble someone walking a tightrope in a strong breeze last month – just about keeping his balance.

The US expanded +0.45% in the first quarter 2011 according to recent data – positive but slow compared to 3.1% growth in Q4 2010. Important non-farm payroll figures meanwhile arrived strong – pointing to 244k new jobs last month – but at the same time unemployment rate increased +0.2% to 9.0%.

CA dollar

The election of a Conservative government in Canada last month should boost the loonie in coming months. New prime minister Stephen Harper is committed to cutting Canada’s national debt and safeguarding the nation’s credit rating – actions that should please the markets.

AU dollar

It’s been a strong month for the Australian dollar on several counts – and the forecast for coming months looks good too.

For one the Reserve Bank of Australia (RBA) raised its inflation forecast last month. This prompted investors to pick up Australian dollars in expectations of an interest rate rise. In addition RBA noted that strong demand from China and India for Australia’s natural resources is set to continue for years to come.

NZ dollar

The NZ dollar suffered last month on reports that migrant intake to New Zealand fell into negative figures for the first time in almost 3 years. This is owing to the earthquake that struck Christchurch two months ago – devastating the nation’s economic outlook and prompting potential migrants to look elsewhere.