Currency update, September 6: sterling suffers as economy runs out of steam

Published: 06 September, 2010

Sterling suffered last week as fundamental data showed signs that the UK recovery is abruptly running out of steam.

Currency Rates

EURO/GBP - 1.194
US$/GBP - 1.538
CHF/GBP - 1.563
CAN$/GBP - 1.596
AUS$/GBP - 1.680
ZAR/GBP - 11.108
JPY/GBP - 129.33
HKD/GBP - 11.949
NZD/GBP - 2.155
EURO/US$ - 1.288
HUF/GBP - 339.03

Purchasing manager data gives a bearing on how much companies are buying and is a useful tool in gauging the relative health of the economy. This came in at the lowest level for 9 months. In addition, Nationwide house price data showed that house prices dropped by 0.9% last month - the second consecutive monthly drop. New construction orders also fell by 14% on Friday which added further concern to investors over the growth prospects in the UK economy as the spending cuts take effect. It is a busy week this week, with manufacturing data, wholesale inflation, retail sales and the Bank of England interest rate decision. There is likely to be significant volatility and the outlook doesn't look ideal for sterling strength.

In the Euro zone, last week saw the European Central Bank announced that it would extend its credit line to banks until January 2011 and kept interest rates on hold. Monetary policy stays fairly loose too. Caution remains in the region, with mixed data leaving investors a little uncertain. Germany continues to outperform the rest of Europe with strong export and manufacturing figures, but this contrasts sharply with the 'Southern European' states of Greece, Spain, Portugal and Ireland. Sentix consumer confidence data is released today ahead of a more comprehensive figure later in the week and should give a good bearing on institutional risk appetite which many feel has improved marginally over the last few months.

In the USA, Friday's Non-Farm Payroll figures showed that the US economy shed only 54,000 jobs last month beating analyst expectations of a 100,000 drop. Despite significantly beating expectations and seeing a slight surge in risk appetite, the fact remains that the US economy is still shedding jobs at a significant rate as the employment rate edged up to 9.6%. There is no data out today, as US markets are closed for the Labour Day public holiday. As a result, expect relatively thin trading.

Elsewhere, a gauge of Australian inflation showed that the annualized growth rate moved higher to 3% in August. The outcome did very little for rate hike expectations as the Reserve Bank of Australia gets ready for the next interest rate decision later on in the week. A survey by investment bank Credit Suisse points to no further rate hikes over the course of the coming year.

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