Foreign Exchange: FTSE Rises But Markets Generally Quiet

With tomorrow’s Bank of England and European Central Bank rate meetings being seen as being able to give the markets some short term direction, yesterday saw a quieter day of activity.

After four days of losses the FTSE rose nearly 3% and whilst the US markets followed, the Far East markets registered further losses.

The British Chambers of Commerce (BCC) reported that the UK economy continued to grow in the second quarter of this year but it warned of serious concerns over sustained recovery.

“This is very much a tale of two sectors,” said David Frost, director general of the BCC. “Manufacturing is performing far better than services.”

He added “What businesses have continued to tell us is they wanted the government to deal with this huge deficit and clearly the emergency budget went down well with our members because action was taken,” he said.

In a sign of a better outlook for the manufacturing sector, UK new car sales rose 10.8% in June compared with the same month last year, despite the end of the car scrappage scheme.

Whilst according to a survey by the Recruitment and Employment Confederation (Rec) the number of staff appointments grew in June, the pace of growth was the slowest for five months.

Rec said more people were available for permanent and temporary work in June compared with previous months which adds to growing fears about the UK’s capacity for employment – particularly when this is coupled with the expectation that the government will cut the number of people employed in the public sector.

UK retail prices increased in June at the slowest annual pace in 3 months as the effects of fluctuations in commodity and currency costs abated, the British Retail Consortium said.

“The era of shop-price volatility seems over for now,” Stephen Robertson, director general of the BRC, said in the statement. “Low and stable inflation appears likely for the rest of the year. In the face of weak demand, retailers will continue to use widespread discounts and promotions.”

GBP/USD

There was somewhat muted demand for the US dollar as further evidence suggested that economic rebound in the US is losing momentum.

According to a survey by the Institute for Supply Management (ISM), the US service sector grew in June, albeit at the slowest pace since February.

This report comes after a series of economic reports have raised fears that the US recovery is faltering.

Last Friday a fall of 125,000 in non-farm jobs in the country was reported.

Also, the ISM, a trade group of purchasing executives, said its service sector index fell to 53.8 from 55.4 in May. A reading above 50 indicates expansion in the sector, while a reading below 50 indicates shrinkage.

That said an analyst, Charles Lieberman, at Advisors Capital Management, said “It’s consistent with the general tone of data, suggesting that the pace of growth is a little more moderate. It’s certainly not suggestive of the double-dip scenario that some people are pushing,” he said.

The ISM’s data on employment fell to 49.7 from 50.4, confirming the latest non-farm payroll report on Friday.

GBP/High Yielding Currencies

The Australian dollar registered sharp gains yesterday on the back of comments from the Royal Bank of Australia which suggested that interest rate rises are ‘around the corner’ and on the news of the deal struck between the Australian government and the mining companies.

Market Analysis by Hannah Wilson, TorFX

Any opinions expressed in this document are aimed at helping readers understand market conditions and developing trends. Readers are wholly responsible for their own trading decisions.

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