Whilst global stock markets faltered throughout August (the Dow Jones itself fell by 5.8%), the Swiss Franc and Japanese Yen have soared against the Pound, Euro and the US Dollar. With concerns still lingering over the health of many developed Western economies, the Franc and Yen have benefited from their perceived ‘safe haven’ status. The US Dollar has in the past month traded at its lowest level against the Yen for fifteen years, and fallen more than 12% since the start of June against the Franc.
However, a bout of renewed investor optimism headed towards the weekend, particularly after Friday’s US non-farm payrolls report, left the Yen and Franc on less sure footings against many of their counterparts. The cheer was provided by less US job losses than expected in August, as private employment absorbed some of the government sector job losses. However, optimism over UK economic prospects had been dealt a blow by disappointing manufacturing activity growth; the weakest since November 2009.
In a busy week for UK data, the latest industrial and manufacturing production data will be watched closely on Wednesday. The Bank of England’s interest rate decision will be announced on Thursday, with UK producer price inflation data to follow on Friday.
Euro (EUR)
Sentiment towards the Euro improved last week, gaining over two cents against both the Pound and US Dollar to finish as one of the stronger performing major currencies. The GBP/EUR rate’s 1.40% decline during the week, from 1.2163 to 1.1993, benefited those converting Euros into Sterling.
Economic releases showed no major surprises. The Euro zone unemployment rate held steady at 10% for a fifth month in a row, as had been widely anticipated. The latest European GDP data remained unrevised for the second quarter of 2010 (at 1.0%) and Euro zone retail sales showed a slight fall in July. The European Central Bank (ECB) also left interest rates at 1%. However, the ECB President Trichet did provide the Euro with further support by suggesting future European inflation could be higher than expected (a catalyst for raising interest rates in stable market conditions).
This coming week the majority of economic data comes from Germany. German factory orders and industrial production will be due on Tuesday and Wednesday respectively, with German consumer inflation data to be released on Thursday.
US Dollar (USD)
The US Dollar initially strengthened last week against the Pound, with the GBP/USD rate falling to a 5-week low of 1.5323. The Pound was able to pare some of these losses as investors’ confidence improved; lessening the US Dollar’s perceived safe-haven appeal. The GBP/USD rate closed down 0.50% at 1.5449 (from 1.5527 a week earlier), benefiting those converting US Dollars into Sterling.
Alongside wider economic data, the US economic data also played its part in the rebound in sentiment. Friday’s crucial non-farm payrolls report was encouraging, with 54,000 job losses in August comparing favourably with expectations for a 100,000-plus decline. Private sector employment actually rose, taking up some of the slack from heavy government sector job losses. Manufacturing activity data, consumer confidence data and pending home sales data also surprised positively. Adding a note of caution, the latest US Federal Reserve policy meeting minutes suggested some officials viewed the overall economic picture as weaker than previously anticipated.
In a short week due to Labor Day on Monday, the US Dollar has a relatively light domestic economic calendar. US consumer credit data is due on Wednesday, whilst further US employment data and US wholesale inventories data will be announced on Thursday and Friday respectively.
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