In a result that could have been awarded by an Olympics boxing judge the euro and its partner-in-crime, the Swiss franc, became the week's unlikely major currency winners. The euro did nothing to earn its victory, which owed more to it keeping its head down than to having delivered any obviously punishing blows. Over the seven days the euro strengthened by half a cent against sterling and added two US cents.
The week's Euroland economic statistics were adequate rather than stunning. Although the first revision to second quarter gross domestic product took German quarterly growth up from 0.2% to a still-provisional 0.4% the figure for the euro zone as a whole was unchanged at 0.3%. A 0.6% monthly rise in industrial production left the year on-year increase below forecast at 0.4%. Consumer prices fell by -0.6% in July, leaving inflation unchanged at 0.2%. The only glimmer of light was ZEW's index of investor confidence: it improved by nearly eight points in August to 57.6.
At the outset it looked as though sterling would be in for another punishing week. It was beset by a wave of negative sentiment as investors sold the pound because it was going down and it went down because they were selling it. The expectation was that the first hard UK economic data to measure the post-Brexit-vote economic situation would paint picture of doom and gloom. That turned out not to be the case. Jobseeker numbers fell by -8.6k in July instead of rising by the forecast 400. And consumers, far from being cowed into submission by the Brexit vote, flashed their cash to the extent that retail sales increased by a monthly 1.4%. Sales in July were up by 5.9% on the same month last year. So having begun the week on the retreat sterling ended it looking relatively perky.
The euro's major competitor, the US dollar, had rather less luck. All investors seem to care about at the moment is when the Federal Reserve will deliver its next interest rate increase. If they believe it to be imminent they buy the dollar. When the prospect of an increase fades they stay away, and they were staying away this week. The minutes of July's Federal Open Market Committee meeting showed only one of the ten members favouring an immediate rate hike and a handful of appearances by Fed chiefs shed no further light on the matter. All of them conceded that higher rates would eventually be necessary but none of them was keen to pin down the likely timing. In theory the FOMC could deliver a rate hike at its meeting next month but financial futures pricing puts only a one in five chance on that actually happening.
For the week ahead there are no top-tier economic data on the agenda from Euroland, Britain or the United States. Monday's preliminary purchasing managers' index readings for the €Z and the States will be provide a first glimpse of the economic climate in August. Tuesday's US durable goods orders will provide entertainment as it always does, on account of the sheer unpredictability of the figure. For sterling the potential flashpoint comes on Tuesday when the Bank of England governor attends parliament's Treasury Committee to discuss the bank's Inflation Report and, by extension, the state of the UK economy.
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