In contrast to last week which was light for economic data, this one has been packed with important announcements, reaching a crescendo on Thursday with the release of US labour market data and the ECB interest rate decision. Yet despite the potential for volatility, currency exchange rates have tended to remain within recent ranges, although subject to risk appetite and risk aversion, which says something about the growing sense of market stability.

In the UK this week, we learned that first quarter GDP contracted by 2.4%. As the largest contraction in 51 years, this was much greater than expected and sent the pound lower against its major currency partners. The ONS attributed the decline to steep contractions in construction and production levels and the government sector remains the only sector growing at present.

Later in the week however, purchasing manager indices for the service and manufacturing sectors came in better than expected, with the pace of recession moderating in June. This sums up the UK economy at present as an increasingly complex picture is emerging between time lag data, such as unemployment and GDP, and forward looking survey data. Sterling exchange rates are subject to this fickle sense of market confidence, although the pound seems to have found a support level at 1.60 on the US dollar and 1.16 on the euro.
 
In the US, the unemployment rate has risen to 9.5% in June, with non-farm payrolls falling sharply by 467,000. The figures for average hourly earnings are also bearish and this triggered a decline on Wall Street, strengthening the US dollar on the back of risk trading.

The ECB decided to leave interest rates on hold at 1%, a move widely expected by markets as the bank remains in 'wait and see' mode when it comes to the economy. Inflation is falling at record levels in the eurozone due to plummeting energy prices and consumer demand while the unemployment rate is on par with the US at 9.5%.

Elsewhere, China reaffirmed the dollar's reserve status this week and posted its fourth consecutive rise in manufacturing levels sending the commodity based rand and Aussie dollar higher. The Polish zloty surged to a six-week high against the euro following the announcement of a World Bank loan for Poland and a report showing manufacturing levels fell at the slowest pace in nine months. Polish growth rates are currently hovering around 0% for the first quarter of 2009.

So internationally, the economic picture remains glum. While there are positive signs that recession is moderating and we may be approaching a bottom, there is also increasing talk of a 'double dip' or 'W' shaped recession as opposed to the more traditional 'V' which would mean we are not out of the woods yet. Only time will tell. However if you need to transfer currency now, your best bet for getting excellent exchange rates is to use a specialist foreign exchange provider. Their specialist currency brokers monitor the currency markets on your behalf ensuring you trade currency at the optimum time. To register with Currency Solutions, give them a call today. Registration is free and there is no obligation to trade.

Have a good weekend.