Weekly US$ rates and comments - week commencing 6th July 2009

Last week was a frustrating week for sterling. Monday started positively with the pound making marginal gains on most major currencies thanks to surprisingly positive figures regarding UK house prices. However, following Tuesday’s much worse-than-expected UK GDP data which showed the largest contraction in the UK economy for over 50 years, the pound started a downward trend which lasted through the week against the US$. Risk aversion played some part in the large losses for sterling as the positive sentiment that had been growing over the last ten or so weeks fell away and reminded us all that we are far from seeing the end of the recession or the economic problems associated with it. This week we have a range of UK economic data with May industrial production and manufacturing production figures being released on Wednesday and on Thursday we will hear again from the Bank of England after their meeting on interest rates. Once again the expectation is for no change on interest rates but as with recent months it will be the comments from the members of the Monetary Policy Committee and the market reaction to their very cautious tone that may put sterling on the back foot once again.

 

 

This week the US$ continued to be subject more to the whim of risk appetite/aversion than any other economic driving forces. Sharp gains were made against sterling midweek following the poor UK GDP data and the resulting risk-aversion helped the US$ to gains against most other major currencies. The important ‘Non-Farm Payroll’ data, which is a much anticipated indicator for US unemployment, was rather disappointing but as already seen in the last few months, this only served to strengthen the US$ thanks to the growing demand for safe haven assets. Today we have the US ISM non- manufacturing survey figures released. These figures relate to the US service sector which is expected to show an improvement from the prior month’s figures. The importance of these figures should not be underestimated as the US service sector represent one sixth of global gross domestic product. On Wednesday we have the US consumer credit figures which are expected to show further contraction.