As August and another bank holiday comes to a close we can all reflect on what has been a turbulent month. The US suffered a historic downgrade following what can only be described as a shambolic period of uncertainty surrounding a potential default on debt. The UK was hit by riots and our economy came under further pressure as both unemployment and inflation continued to climb. Less surprisingly the duo of Merkel and Sarkozy failed to calm markets during what was a ‘beat around the bush’ announcement regarding future plans for the eurozone. So, given that there was little bullish news, what does September have in store for us? One suspects more of the same: Sterling remains a dead duck, the euro continues to over perform and the US Dollar teeters on the brink.
Pound Sterling – UK Markets
Despite all the negative sentiment surrounding sterling this year, August left our currency relatively unchanged. We have been helped by lacklustre eurozone and US data that has swamped the markets. Looking ahead, the Bank of England’s main focus will be growth. With sterling relatively weak we should be expecting our export industry to improve and with a little bit of help we will be hoping for retail figures and consumer confidence to pick up in the months leading up to Christmas. It’s only August and I’ve already mentioned the festive period; must be the weather!
US Dollar – US Markets
In an important round-up of figures, the US economy rebounded with better-than-expected consumer spending figures. When adjusted for inflation it was revealed that sales were up 0.5 percent. Surprisingly, these figures were driven by an increase in car sales. The data is incredibly important for the US recovery as consumer spending accounts for more than two thirds of the economy. Despite this the economy only expanded at an annualised rate of 1 percent between April and June, down from its first calculation of 1.3 percent.
Further to this the International Monetary Fund has slashed US growth forecasts for this year to just 1.6 percent. This was down from an original estimate of 2.5 percent which was made just two months ago. Despite all the hype surrounding the US, the nations currency remains relatively stable compared to where we closed on Friday afternoon.
Euro – European Markets
European Central Bank President Jean-Claude Trichet has joined a growing list of dovish individuals to retreat from views given earlier in the year. Trichet controversially announced rate rises twice this year, breaking trends with the Bank of England and Federal Reserve who have both maintained rates at record lows. These latest remarks are the first sign that the ECB is shifting its concern away from inflation, more gradually towards growth.
It appears that scepticism from leaders is continuing to filter through the economy down to the lower levels as consumer, economic and industrial confidence in the zone remains low. Whilst consumer confidence did come in slightly better than expected, there was still a marginal decline from figures released in July. Meanwhile economic and industrial confidence both came in well below expected. In the immediate aftermath to this news the euro lost a bit of ground.
Other Currencies – Highlights
With the help of reports that showed building permits and Chinese manufacturing both strengthened the Australian and New Zealand Dollars both gained. They touched levels not seen for the last month and joined gains also seen in the Asian stock markets.
Sterling Rises Sharply on Renewed Hopes of the UK Leaving With a Deal
Dollar Rises Modestly on FOMC Minutes
Sterling Rises on Hopes of EU Softening Tone on Backstop