Whilst inflationary pressures remain a constant worry for the UK, a severe lack of growth in the eurozone appears to be taking its toll on even the most prominent nations. Meanwhile, the US is yet to awaken today, but early morning reports suggest that they could also take a firm battering later in the afternoon. These are worrying times for global markets and with little on the horizon to suggest that there may be anything to get excited about it is simply a case of hanging tight!
Pound Sterling – UK Markets
As I reported yesterday, this week would be telling for the UK economy. Whilst sterling has remained steady throughout the turmoil of the last few weeks, the same cannot be said for our inflation data. Today’s figures revealed that the rate of Consumer Price Index inflation rose to 4.4 percent from 4.2 percent in June. However, the Retail Price Index measure was unchanged at 5 percent. In the past, sterling would have reacted in a positive way in the expectation of a potential interest rate rise. However, Bank of England Governor Mervyn King has made it clear on a number of occasions that this would not be occurring in the near future.
Like a naughty pupil being sent to the principles office, Mervyn must now write a letter to the chancellor to explain why CPI remains well above the target 2 percent target rate. Sterling on the back of this has remained relatively stable. The likelihood is that the market forecasted this and factored it in to any potential movement.
US Dollar – US Markets
The US Dollar is expected to have a quiet morning. However, with a raft of data due out of the US economy later this afternoon this can only be seen as the calm before the storm. In fact, economists are predicting the ongoing struggle in the housing market to continue. Falling sales, foreclosures and a lack of jobs may delay a rebound in homebuilding which, in the past has been a huge source of strength in the early stages of past recoveries.
Further to this, the US will report on imports and overall industrial production. The figures will give us all a good indication of progress being made in the lagging economy. With the US still a calf on wobbly legs, investors and economists are torn over whether the global powerhouse is likely to get back on the road to recovery. No predictions here, only time will tell.
Euro – European Markets
The investors among us appear to be making all the correct predictions. Europe’s debt contagion appears to have made its way into the German economy. The economy grew by just 0.1 percent in the period between April and June. Adding to this, the economy was weaker at the start of the year than previously thought. In recent months it was apparent that Germany had been driving the recovery in the eurozone, but with these latest figures all that is expected to change.
Further to this gloomy news, data also showed that Spanish economic growth slowed to 0.2 percent in the second quarter, down from 0.3 percent in the previous three months.
Other Currencies – Highlights
The Swiss franc continued to lose ground against the dollar. The so called ‘safe haven’ currency has taken huge steps backwards over the last few days as the central bank took steps to weaken it.
The Australian Dollar, after a relatively settled few days has fallen against the majority of its 16 major counterparts. This was due to the Reserve Bank failing to dampen speculation of a rate cut. Policy makers are concerned that the turmoil in financial markets could slow economic growth.
Political Jitters in UK Weighs on Pound Sterling
Euro and Pound Sterling Recover Modestly on Friday
The US Dollar Rallies on Upbeat Data and Hawkish Fed Stance