Sterling remained in a slim trading range against most major currencies for much of August although a raft of weak economic data in the UK lead to the pound losing value more recently. Sterling fell to a 3 week low against the euro following the release of UK manufacturing PMI which measured 54.3 for August, way below analyst’s forecasts and after a reading of 56.9 in July.
Concern over a double dip in the housing market has grown as Nationwide’s house price index reported a fall in the average house price. This followed on from an earlier release when RICS also announced a fall in house prices for the first time since July 2009. Attributed largely to an increase in properties coming onto the market and demand from purchasers slipping back.
On a more positive note GDP figures for Q2 have been revised up from 1.1% to 1.2% and year-on-year from 1.6% to 1.7%. However some feel the Chancellor’s cuts will reduce the speed of economic recovery, including The Bank of England which has reduced its growth forecast for 2010.
The Bank of England look set to keep interest rates on hold and some anticipate we may not see any change before mid 2011 despite calls from Monetary Policy Committee member Andrew Sentence for a rate rise sooner. It is thought that inflation will return to a more acceptable level in the mid/long term and that an increase in the base rate could stall the recovery.
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The eurozone economy grew by 1% between April and June and annual inflation fell from 1.7% in July to 1.6% in August, well below the ECB’s target of 2%. And it seems inflation will remain under control for the foreseeable future as European governments implement austerity packages. The positive GDP figure was largely driven by growth in Germany which measured 2.2% alone, confirming the eurozone is growing faster than the US economy. Interest rates remain at 1% and look unlikely to change in the near future.
The annualised growth of the US economy for Q2 was revised down from a first estimate of 2.4% to 1.6%, which was better than most analysts had been forecasting. Poor economic data had raised concern that the US was entering a double-dip recession, possibly taking the rest of the world with it. The figure still marks a big drop on the growth for the previous quarter, which stood at 3.7% although the economy has now grown for four consecutive quarters. Non Farm payrolls declined by 54,000 against market expectation of 100,000 whilst the jobless rate edged up to 9.6% in August from 9.5% in July.
Canadian statistics showed that economic growth slowed sharply in the second quarter of the year. GDP increased 0.5% compared with 1.4% in the first quarter and sluggish consumer spending has been blamed for the slowdown. Analysts had predicted an annualized growth rate of closer to 2.5% for the period April-June although it fell short at 2%. Interest rates remain at 0.75% following a 0.25% hike in July.
The Australian economy grew at its fastest pace in 3 years in Q2 of the year. The growth was largely fuelled by demand for the country’s commodities, mainly from China. The figures released on Wednesday showed GDP expanded 1.2% compared with 0.7% in the first quarter. Investors had thought there might be a cut in interest rates as inflation had been cooling but this seems less likely now. Rates have been on hold at 4.5% since May.
GBPNZD (New Zealand dollar)
New Zealand’s slowing economy and a faltering global recovery may prompt Bank Governor Alan Bollard to keep interest rates on hold. “Increasing uncertainty surrounding the global recovery combined with a string of weaker than expected domestic data have afforded the governor time to stand out,” said Helen Kevans, senior economist at JPMorgan in Sydney. Interest rates remain at 3% for now.
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