GBP
There was a fair amount of data on Friday for investors to digest. New orders increased slightly as did business optimism, however this was offset by other numbers missing the mark. Services-sector index fell to a 17-month low but did come in above market expectations and finally, UK PMI manufacturing numbers hit a 25-month low – in line with consensus forecasts. The Conservative leadership contest will be of interest this week as both contenders reveal more about their economic policy. With GBP looking particularly fragile to external forces, any unexpected announcements from either potential leader could see increased volatility.
EUR
Euro-Zone, German and French PMI manufacturing index numbers all showed contractions, with the Euro-Zone numbers hitting 25-month lows. Services-sector readings also missed their targets and again there were 15-month lows for the Euro-Zone as a whole. New orders declined which only added to Euro woes meaning the single currency ended the week pretty badly. There are increasing fears over the health of the Zone’s economy with particular concern over Germany. It makes up such a big part of the region and is very heavily reliant on Russian gas, with the German Bundesbank stating that the economy will remain weak, the outlook for energy markets is bleak and inflation is likely to spike. Geopolitical issues continue to weigh heavily on the single currency with volatility expected to continue going into this week.
USD
The Dollar had a reasonably difficult end to the week with the news that the Fed are unlikely to raise rates on Wednesday by the previously rumoured 100 basis points but “only” by 75 basis points. Despite this being a significant raise, the market saw it as a fall in one measure of long-term inflation. All eyes will now be focused on the rhetoric around the decision and any hints as to what the Fed may do at the next meeting on 21st September. Thursday sees US GDP data and Friday sees Core CPE Price Index readings, however, unless there are significant movements above or below expectations Wednesday’s Fed meeting will steal the headlines. One thing of note is that if Thursday’s GDP data sees a contraction, it would mean that the US meets the conventional definition of a recession (the US uses a different definition). This could see the Dollar fall, however, if the global outlook remains poor and this is seen as a prelude to recessions elsewhere, USD could be a safe haven.