Focus was placed on the interest rates decision by the Bank of England which took place last Thursday. However, the latest decision to keep rates on hold at 0.5% is less important than the minutes due out later this month, which could give a clear indication of where Interest Rates are headed. Last month MPC member Andrew Spence spoke openly about his concerns about the decision to freeze interest rates because of the lingering risk of inflation.  With levels still above the 3% upper limit he may have a valid point to make.  However, on Friday the UK producer prices input and output figures were released and unexpectedly fell for the first time in 1 ½ years.  These reports have helped ease inflationary pressure and the new fiscal measurements will hopefully curb the threat of further inflation.

With US markets kicking off late last week due to the Independence Day Bank holiday it took some time for them to get themselves started again.  A lacklustre first half of the week certainly displayed signs of a slowing economic recovery in the US, most notably with the release of ISM non-manufacturing data for June which came in 1.2 less than expected at a staggering 53.8.  This drop of 1.6 on May’s figures did not help ease the growing concerns that were arising over a possible double-dip recession.  The US Dollar suffered early on in the week on the back of the holiday and these worrying figures.  However, later in the week a slight recovery took place when jobless claims fell on the previous month, and strong store sales, benefiting mainly from the good weather and the recent Memorial Day holiday, put in a strong performance to help boost the currency slightly.

A busy week in the Eurozone saw much of the focus put firmly on the banks participating in upcoming ‘stress tests’. These are tests designed to see how banks would cope with another economic downturn. Whilst the majority of the general public was awaiting the ECB’s decision on interest rates, many experts were choosing to focus on ECB president Jean-Claude Trichet’s post rates speech as a gage on what the outcome of the stress tests would be. Due to take place soon, the results of these tests will be published on the 23rd July.  Should the results prove to be as positive as expected, the Euro should expect to make further gains in the market.

Elsewhere in the world, Australia released strong data throughout the week. On the back of concerns over unemployment levels, figures showed that 45,900 new jobs were added in June which exceeded initial estimations of 15,000. Although the RBA released figures showing that commodity prices had dropped, those most important to the Australian economy were still performing well. Furthermore, this coupled with increases in consumer and business spending brought the highly commodity linked currency put in a strong position throughout the week.

This week see’s a huge amount of key data being released which could affect the currency markets.  Most notably, early on we have seen GDP figures in the UK remain at 0.3% and straight off the back of this news the local currency has retreated further against the Euro and US Dollar.  However, in a busy week there will undoubtedly be plenty of movement in the crazy, unpredictable world of currencies.

To discuss how to protect yourself from currency movements call Nigel Hodges on +44 (0)20 7740 0000.

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