Currency Update – Monday 2nd August

Currency Update – Monday 2nd August

This week contains the first Friday on the Month and that means the US non-farm payrolls release, after the run of poor US data this month’s release will be even more important than usual, and along with manufacturing data could dictate the tone of US markets thus month. The softer US data released recently, was reiterated by Friday’s GDP figures which came in weaker than expected, although only slightly, which has backed up the general view that the US economy will start to drag as the stimulus measures are gradually withdrawn. It is hard to say whether the stimulus measures have made much difference as it’s impossible to know what would have happened if they weren’t implemented, however it does seem that at best the measures have allowed the US economy to avoid a depression, and they don’t seem to have prompted private investment activity as some had hoped. If growth in the US economy continues to slow down, then the talk of renews QE will become louder. As the US economy is slowing down, but not dragging the global economy with it (at least not yet) the Dollar has suffered, it has fallen against the Yen to a level (Y85.93) only seen once, and very briefly, since 1995, while the Euro has pushed up to just under 1.31 against the US currency.

For now the problems in the US seem to be contained to the Dollar, and has not yet hurt perceptions of global growth, so other growth dependant currencies are still doing well, so the Australian Dollar is at high’s not seen since the beginning of May, While Sterling has reached highs against the US Dollar not seen since February. This week sees the release of profit reports from the big 5 UK banks, starting with HSBC. All are expected to show a return to profits, although with many small business claiming they can’t get loans from the banking sector, and most of the  profits made from the investment wing of the banks, whether the profits are a sign of a healthy financial sector is open to argument. Since May the Pound’s rise against the Dollar has been dramatic, and there were predictions that it would run out of steam just above 1.57, however it has kept pushing past this level with the next level of resistance at 1.5815. The US GDP figures were only slightly worse than expected so the current pessimistic perception of the US economy may be reversed by some of this week’s data releases.

For the last few months the PMI for manufacturing has shown a remarkable pace of growth, and although today’s figures have shown slight slowing of that pace of growth, the sector is still doing well, plus it is even shows sign of both input and output prices starting to ease, something the MPC will be very pleased to see. The figures will help support the GDP figures for Q3, and are likely to keep the Pound supported throughout today.

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