The currency blog

Sterling has performed well particularly against the Euro in the last couple of sessions. The trend was bolstered by July’s UK Manufacturing report showing gains for the third month coming in 0.3% and posting the biggest annual gain since 1994, signalling the economic recovery is persisting. The report suggests that strength in the domestic economy and the weak pound is maintaining a pickup in the manufacturing sector. Another positive for the pound saw Halifax release positive house price data. This showed that house prices increased more than expected at 0.2% in August, following on from a 0.7% rise in July.

German exports unexpectedly dropped in July for the first time since April at -1.5% month on month and imports fell at -.2.2%. The Trade balance showed a surplus of €12.7bn. German Industrial output also disappointed at 0.1% after expanding at the fastest pace in two decades during Q2 2010. This data adds to evidence that the German economy is showing signs of cooling and may struggle to gather strength as the global recovery weakens and European governments cut spending to push down budget deficits

U.S. markets tried to stage a recovery but failed, the morning rally was put to a halt after President Obama’s speech acknowledging that the recovery has been “painfully slow” and urging the U.S. Congress to approve more business tax breaks and infrastructure spending to boost the economy. The Fed’s Beige Book report did not help to improve the mood much either. Although the report showed moderate growth across most of the 12 districts, it also pointed to a “widespread signs of deceleration”.

Todays main attraction is the Bank of England policy statement for September. It is widely expected to maintain its current policy of a benchmark interest rate at 0.50% and asset purchase target at GBP 200 billion. Policy maker Andrew Sentance has been defeated at the last three monthly meetings in a push for higher interest rates to stem a pickup in inflation above the government’s 3% upper limit and we will have to wait for the minutes to see if it remains the same this time. The decision will be announced at noon today.

We also have UK Trade balances which are expected to show the trade deficit to widen slightly to GBP 3.7bln in July and in the afternoon the usual weekly Initial jobless claims in the US. After climbing to 504,000 in mid-August, initial jobless claims have averaged 475,000 for the past two weeks. The market is looking for 480,000 this week.

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