F/X Weekly comment

Almost a cheery end to the week for sterling on Friday, as we ended up at 1.1420 against 1.1289 the week before. It wasn't all one way traffic though, and economic news during the week had a familiar ring to it.

Rangebound

Sterling/Euro seems to be stuck in 1.11 to 1.15 range, yet I get the feeling that it could strike out of that range in spectacular fashion, up or down, without much warning. And of course it's nothing to do with strength, and all to do with weakness.
There is a global growth problem at the moment. It's not just confined to Europe and the UK. That in itself makes it more difficult for either of those economic entities to improve. If the world isn't buying, what is the point in masking more of anything?

UK weakness

This week saw another stream of disappointing economic data which undermined sterling as worries over the UK recovery continue. House prices fell again, as did service sector and manufacturing activity. Growth in the UK construction sector showed a further slowdown last month according to the PMI construction survey released this week. The figure was the lowest so far this year. All this negativity supports the view that UK interest rates are expected to remain at a record low of 0.5% for some time yet, maybe into 2013.

Euro weakness

In the Eurozone, the Euro had a rocky week against the US dollar after the Federal Reserve indicated another possible round of quantitative easing on Friday. The Euro weakened against sterling after manufacturing activity in the Eurozone shrank more than expected. Germany had the strongest manufacturing figures with 50.9, whilst Greece had the weakest at 43.3. Germany also saw its new export orders decline which has increased concerns over the euro zone economy. (anything over 50 means growth, below 50 is projected shrinkage)
The manufacturing picture diverted attention from the debt crisis in Europe for a while, but it is never very far away. The Spanish government managed to sell €3.6bn of 5 year debt versus a target of €4bn or €6bn, whichever source you read, but either way, that isn't good news. The auction, when taken in addition to some horrible manufacturing PMI numbers from gave sterling the shot in the arm to finish the week strongly.

This week?

Guesswork, pure and simple, and my guess is that the Euro will stumble along in its own inimitable way without falling over, and the UK will trot out yet more dismal economic data and get trounced. back to 1.1250 for me by next week. I'd love to be proved wrong!