Europe - last week
The euro has now tumbled by as much as 4% in July against a basket of currencies as analysts continue to raise question marks about Europe’s unconvincing progress on putting an end to the its debt crisis. Spain’s borrowing rates climbed back above what markets perceive as bailout territory amid growing fears the euro area’s fourth biggest economy may soon require an international rescue.
Highlights this week
After ZEW reported another worrying drop in German business sentiment in July, economists will examine Wednesday’s German IFO business climate index for signs that eurozone debt jitters are damaging growth prospects in the area’s most influential economy. Investors will also continue to make regular checks on Spain’s financial pulse and anymore abnormality could see the euro sinking even lower.
UK - last week
Investors ignored more warning signs about the health of the British economy and focused their attention on Spain’s ongoing debt struggles instead; taking the pound to fresh 3½-year highs against the euro. Cable also reached one month highs despite minutes from the Bank of England’s July monetary policy meeting exposing a committee still prepared to take more monetary easing steps.
Highlights this week
Recent economic indicators, including the latest retail sales and inflation figures, suggest that Wednesday’s third quarter UK growth data may show that the British economy contracted for a third consecutive period. A negative print could easily derail the pound’s upswing if investors see the chances of an interest rate cut increase.
USA - last week
Specualtion about the Federal Reserve’s monetary policy outlook continued to swirl as the Fed’s chief, Ben Bernanke, delivered his semi-annual report in front of US lawmakers. Bernanke reaffirmed market expectations that a third round of dollar-negative asset purchases could be on its way at some point this year. The remarks overlapped data showing a sudden drop in US retail sales last month and a rise in weekly jobless claims, forcing the greenback to one-month lows against the British pound.
Highlights this week
The build-up in front of Friday’s US growth figures may not favour the US currency. The consensus amongst analysts is that the GDP data will reveal a sharp slowdown of economic activity in the third quarter. A discouraging print may darken the monetary stimulus cloud currently hanging over the dollar; however, a more substantial drop-off in activity could be damaging for the global economic outlook, a debate that usually strengthens the dollar’s safe haven allure.
Japan - last week
A bank holiday week in Japan kept updates from Tokyo to a minimum, although investors did receive minutes from the Bank of Japan’s monetary policy meeting in June. The report revealed nothing unexpected, leaving the yen to trade in correlation with broader market sentiment. Predictably, the Japanese unit moved ahead of both of its eurozone and US rivals. The yen clocked six week highs in both crosses, offering investors a steady source of shelter in the midst of Europe’s never-ending debt risks, and the Federal Reserve’s seemingly unfinished quantitative easing project.
Highlights this week
The yen could register a very similar performance over the next few days with all eyes on Spanish debt and Friday’s all-important US growth data. As a result, traders may continue to reinforce their defensive yen positions, albeit cautiously ahead of upcoming Japanese inflation data that is likely to rekindle anxiety regarding deflation. The yen will also be in danger of profit-taking if above-forecast US data dampens expectations of additional emergency action from the Federal Reserve.