Sterling was vulnerable almost across the board this week. UK net lending and money supply data was poor on Tuesday and consumer confidence data remains at very low levels. The euro was on the back foot.
Euro zone annual inflation was unchanged in August while the number of people without jobs continued to increase. This was confirmed by figures released on Wednesday, adding to expectations that the next ECB (European Central Bank) interest rate move could be a cut rather than a hike. As a result we saw GBP/ EUR trade around the €1.13 level and a dip in the market was looking increasingly likely towards the latter stages of the week as the euro continues to enjoy hefty investment from Asian sovereign buyers.
EU statistics office Eurostat said inflation in the 17 countries using the euro was 2.5 percent year-on-year in August, the same as in July, as expected by economists.
The European Central Bank has indicated they want to keep inflation below, but close to, 2 percent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.
There was no surprise month-end moves from the British Pound this time, Wednesdays session was a case of sideways trading among the major currencies, though the euro had weakened significantly by Thursday morning.
With regards to the euro exchange rate we note that PMI (Purchasing Managers Index) numbers are due across Europe with slight declines expected in general and risk appetite should respond accordingly.
Friday morning’s whole-of-Eurozone Producer Price Index data showed an acceleration in the increase in input prices for Eurozone producers. Invariably, manufacturers will pass these price rises on to consumers, so the figure suggests that the single economic area may face higher prices as 2011 draws to a close, meaning further interest rate rises by the ECB are increasingly likely.
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Sterling vs. US Dollar;
The Sterling/Dollar had a bullish day on Monday, as traders continued to sell the USD against many other currencies. As the stock markets rallied, the Pound gained strength against the Greenback.
On Tuesday Pound/Dollar decreased by nearly 170 pips, in converse with the positive Interbank sentiment at nearly +1%, depreciating from 1.6420 to 1.6253, closing the day at 1.6297.
The pound edged higher against the U.S. dollar on Wednesday, as the dollar was weighed by mounting speculation that the Federal Reserve may soon implement fresh stimulus measures to boost U.S. growth.
On Thursday Pound/Dollar decreased with nearly 125 pips, in line with the negative Interbank sentiment at almost -8%, depreciating from 1.6257 to 1.6130, closing the day at 1.6178.
The pound slipped to a three-week low versus the US dollar on Thursday afternoon to $1.6197 after data released showed that manufacturing activity in the UK shrank in August, further signalling that the economic recovery is stalling.
Friday afternoon’s Non-Farm Payroll figure caused massive price action for the Dollar at the time of its release. The figure immediately caused investors to move out of stocks and into defensive bond plays, which saw the US Dollar gain ground as the week’s session drew to a close.
The Pound edged higher against the Greenback on Friday, extending a bounce from a 3-week low struck on Thursday at 1.6130 ahead of the US jobs data. GBP/USD managed to regain the 1.6200 mark during the European session and touched a daily high of 1.6253 in recent trade.
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Weekly Economic Data that may affect exchange rates
Tuesday –
Today in Australia we have the RBA interest rate decision and policy statement. In the Eurozone we have GDP figures month on month and year on year.
Wednesday –
Wednesday sees industrial production and manufacturing production figures released in the UK, whilst in Canada we have the BoC interest rate decision.
Thursday –
An important day for the UK and Eurozone with interest rate decisions for both economies. On the other side of the pond we have jobless claims data.
Friday –
We end the week with a busy day in UK but quieter elsewhere with data Producer Price Index in the UK which measures the change in the price of goods manufactured. The UK also releases figures relating to the Trade Balance and Producer Price index.
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