The Pound has been active despite Market Holiday as data and growth forecasts keep currency active. The London markets were offline for the summer holiday, but the sterling was nonetheless on the move at the start of the week. The economic docket would bring the biggest drop in the Hometrack’s Housing survey in 16 months and a sharp uptick in the GfK consumer confidence survey. That being said, the BCC’s forecasts took top spot. The group projected a hold on BoE rate until 2011 and five-year average growth of 2 percent.

The Dollar has been underpinned by upbeat news on the US economy. Consumer spending rose 0.4% in July, the fastest pace in 4 months and snaps a string of bad economic news that had cast gloom on the economic recovery. Markets were also reassured by comments from Fed Chairman Bernanke last week that the central bank would do what is necessary to spur economic recovery while playing down the likelihood of the economy slipping back into recession. Concern mounted last week after several reports pointed towards a slowdown in the economy. GDP was reported at a modest 1.6% in the second quarter, down from 3.7% in the previous quarter while Durable Goods orders slid -3.8% in July.

The Euro has been largely range-bound as risk appetite stemming from concerns about the US recovery remains the currency’s primary driver. New Industrial Orders came in above forecast 2.5% in June while the Purchasing Manager’s Index (PMI) remained firmly above the 50 growth threshold at 56.1 in August. The positive economic news comes largely on the back of Germany as the country remains the engine of growth for the region. Strong performances by Germany and France are in stark contrast to the other member countries which continue to struggle. Standard and Poor’s downgraded Ireland’s credit rating to AA- and assigned the country a negative outlook.

Data released 31.08.10

UK      09.30 Mortgage Applications (July)

EU      10.00 Flash HICP (August)

EU      10.00 Unemployment (July)

US      14.00 Case Shiller House Prices (June)

US      14.45 Chicago PMI (August)

US      15.00 Consumer Confidence (August)

US      19.00 FOMC Publishes Minutes of 10th August Meeting

The Pound declined against the Dollar and the Euro yesterday as a Bank of England policy maker, Martin Weale commented that the UK may fall back into recession. Weale commented that there is a significant chance the economy will contract over a four-quarter period. Furthermore, risk aversion flows added increased pressure on the Pound.

The Dollar made gains against the Pound and declined against the Euro as Existing home sales for July fell 27.2% to 3.83M sales vs. the previous 5.37M and 4.65M eyed, instilling further fears that the real estate market may move the economy back into recession. Furthermore, the Richmond fed manufacturing index posted a decline for August to 11 from the previous 16. This fell in line with last week’s weak Philly Fed data. Today we see durable goods orders and new homes sales figures which is expected to give investors more light into the recovery sentiment of the US economy.

The Euro moved higher against the Dollar and the Pound yesterday, holding above the 1.2600 support level as industrial new orders posted a 2.5% rise vs. 1.5% eyed for June. According to Bloomberg, the index increased by 4.1% on a monthly basis in May, suggesting that investor focus will maintain in US releases until new Eurozone fiscal challenges resurface. The focus today will be on the German IFO survey. If data comes in better than the expected 105.7, investors may see the euro recover more of last week’s losses against the Dollar.

Data released 25.08.10

US      13.30 Durable Goods (July)

US      15.00 New Home Sales (July)

The Pound made gains against the Euro while declining against the Dollar as concerns of a faltering global economic recovery boosted safe-haven currencies. Despite positive UK retail sales figures, the Pound continued to be pressured by the probability of further austerity measures implemented by the Bank of England.
Also to note all eyes this week will be on the UK’s GDP for Q2 release with survey figures anticipate to be unchanged at 1.6%.

The Dollar made considerable gains against the Euro and the Pound as risk aversion flooded the market. With little economic data, the dollar is trading largely on risk sentiment set by the recent disappointing Philly Fed and jobless claims report. Weaker fundamentals may temporarily support the dollar due to risk aversion flows. However, should the fundamentals continue to remain negative, the dollar may be pressured to decline in the long run.

The Euro declined against the Pound and the Dollar after ECB’s council member Axel Weber commented that the region will need unlimited lending from the central bank through the year end. Weber’s comments suggest that despite recent optimistic economic data releases, the region’s economy will need further monetary policy support.

Data released 23^rd August 2010

EU      15.00 Flash Consumer Confidence (August)

The Pound made gains against the Euro while remaining relatively unchanged against the Dollar as the Pound was supported by stronger than expected retail sales and public finance data. Sales, minus auto fuel, in July increased 0.9% vs. the previous 1.0% and 0.2% eyed. Meanwhile, the government posted a smaller deficit with net borrowing at 3.17 billion compared with 5.52 billion a year earlier and 4.8 billion expected.

The Dollar made gains against the Euro while remaining relatively unchanged against the Pound following disappointing jobless claims and Philly Fed data. Initial jobless claims report showed that 500k Americans filed applications for unemployment benefits last week vs. the previous 484k and 478k eyed. Further pressuring the dollar was the Philly Fed data posting a -7.7 contraction in demand vs the previous 5.1 and 7.0 eyed, suggesting a slowdown in manufacturing. Weak employment data coupled with disappointing Philly Fed aided to recent concerns that the US economic recovery may be stalling.

The Euro declined against the Pound and the Dollar following the German PPI showed a gain of 0.5% vs. 0.2% forecast but still lower than the previous 0.6%.
Despite positive data, the euro declined largely due to renewed concerns about Greece. An article in German magazine Der Spiegel released that the austerity measures implemented to cut spending may further increase debt service problems in Greece.

Data released 20.08.10

No Significant Data

The Pound declined against the Euro and the Dollar as inflation came in as expected, dropping -0.2% vs. the previous 0.1% for July. Today’s Bank of England minutes should give investors clarity in inflation sentiment and the direction of the Pound. On the technical’s, strong support lies at the 200-day moving average of 1.5500 in dollar. Should sterling fall past that level, the GBP/USD will likely remain bearish.

The Dollar declined against the Euro while making gains against the Pound following a rise in the stock markets, relieving investor concerns of a faltering global economic recovery. Recent news of China selling US reserves also added additional pressure for the dollar to turn bearish. China, which currently holds the largest foreign exchange reserve totalling $2.45 trillion, recently sold more than $55 billion worth of dollar denominated securities while purchasing yen and euro bonds. On the data front, expectations were met with July’s PPI m/m remaining stable at 0.2% vs. the previous -0.5% and industrial production gaining 1.0% vs. the previous 0.1% and 0.5% eyed. Although wholesale data held up, housing starts fell to 546k vs. the previous 549k and 560k eyed.

The Euro made gains against the Pound and the Dollar as a result of a strong Irish bond auction and stronger equity market. The ZEW survey, which measures the expectations of future economic growth in Germany, unexpectedly fell to 14.0, a sharp decline from the previous 21.2 and expected 20.0 in July, dampening the outlook of a strong Q2 growth.

Data released 18.08.10

UK      09.30 BoE Minutes of Aug 4th/5th MPC Meeting