The Pound declined against the EUR and the dollar last week as economic growth in the U.K. nearly came to a standstill! GDP cooled to 0.2 percent, down from 0.5 percent in the first quarter of the year.
Total industrial production also dropped 1.6 percent, the lowest reading since the first quarter in 2009. As such, the markets are not only anticipating that the Bank of England will be on hold, there is speculation they will start a round of quantitative easing, which will certainly weigh on the pound.
The Dollar made gains against the Pound while declining against the Euro. Bernanke’s speech at Jackson Hole proved to be a non-event and markets are expected to concentrate on this week’s heavy economic calendar as investors try to assess the degree of slowdown in the major economies.
The US calendar will be dominated by the release of FOMC minutes, along with the ISM on Thursday and non-farm payrolls on Friday. The manufacturing ISM index for August is expected to drop to 45.0 from 50.9. This comes in the wake of a series of negative regional PMI surveys, with the Philly Fed survey in particular taking a massive hit, dropping more than 30 points.. On Friday, payroll figures are expected to show a moderate increase in employment. Hence, we should see an addition of 115,000 non-farm payrolls and 100,000 to private payrolls. However, public sector employment should remain weak as debt talks have put government hiring on hold. Unemployment is expected to remain unchanged at 9.1%. All eyes will be on tomorrow’s release of the FOMC minutes in order to gauge sentiment for further quantitative easing within the committee. Together with Bernanke’s Jackson Hole speech from last Friday we should get a clearer view of the Fed’s future plan of action.
The Euro is modestly higher vs. the dollar at the start of the week. The single currency rose above $1.45, breaking out of last week’s narrow ranges between $1.43 – $1.45. Fed Chairman Bernanke’s much anticipated speech last Friday provided no plans on further actions to boost the economy, leaving markets with little enthusiasm to pursue a new tack. Despite thinned summer conditions, several key Eurozone reports including Economic Sentiment, Inflation and the Purchasing Managers Index ahead of Friday’s all important US jobs report may awaken the euro from its comfortable summer ranges.
Data released 30.08.2011
US 13.30 Personal Income / Consumption (July)
Core PCE
US 15.00 Pending Home Sales (July)