Mixed data leads to range trading

The currency markets settled into range trading yesterday as mixed market data continued to cloud the outlook for global economies. Sterling dipped sharply following unexpectedly weak retail sales data which reinforced recent words of caution from the Bank Of England and Mr Darling. The pound managed to claw back most of the losses in later trading and this bodes well for the technical strength of the pound which could see it form a base for a move towards 1.20 against the euro and 1.65 on the USD.

Focusing on data yesterday from the US, weekly jobless claims rose to 608,000 although there was a decrease in continuing claims; this indicates that the pace of lay-offs has fallen and added optimism to the markets as employers look to retain staff with the view of an expected rise in business activity going forward. In addition, the Philly Fed survey on the manufacturing sector showed a rise to -2.2 in June from -22.60 in May, although still a contraction the data is much healthier than expected. This helped to calm jitters and lift activity in riskier assets, the AUD posted gains against the YEN, USD and GBP and the Kiwi dollar also gained.

In other news, German producer prices came in as expected and EU leaders stated that further budget stimulus was not warranted at the present time. Leaders also backed the reform of financial supervision following news from the UK and the US on this topic; the EU will plan a creation of pan-European standard-setting and risk monitoring bodies in 2010. EU leaders are expected today to back a plan for a quick disbursement of the next installment of aid to Latvia. The Euro is looking stronger against the USD but remains under pressure against sterling.

Figures from yesterday showed that Britain’s public finances fell with net borrowing rising to nearly GBP20 billion. Also a report from the Bank Of England showed that lending to British businesses fell by GBP5.4 billion in April- not a good indicator for easing credit conditions. Sterling was not dented on the news but growing debt and tight credit conditions going forward will weigh on the pound.

The Swiss National Bank (SNB) said that it would continue to act to prevent the appreciation of the Swiss Franc against the euro- the SNB intervened on March 12 and again through the Bank for International Settlements on May 15th. The Swiss Franc was a major gainer during the global slowdown and the SNB are proactively trying to maintain a leash on the strength of the Franc.