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USD could be on back foot again

USD could be on back foot again

The Flash European PMI reading for August showed signs of stagnation in the third quarter for the Euro zone. Manufacturing has started to contract, dropping below 50, and business expectations saw a significant drop. This suggests that there could be some down side risk to the initial flash estimate. However, the general feeling was one of relief that the figures were not worse.

Yesterday’s German ZEW survey of economic sentiment unexpectedly slumped in August, with the current situation reading dropping at a rate last seen after the collapse of Lehman brothers. It now appears that the German economy has come off the boil. However, today’s IFO survey will help us to understand how German firms, who are primarily concerned with orders, are fairing. There is expected to be a dip from 122.9 to 111, which would still be consistent with strong growth.

Yesterday, another European leader, Finland’s Jyrki Katainen, created worry in the Markets over his comments that Finland could pull out of an agreement to enlarge the European Financial Stability Fund. This has led to concerns that an agreement could fail to be reached by the end of September.

In the UK, there was some good news yesterday with CBI industrial trends survey showing an unexpected rise in manufacturers order books. The feeling is that the impact from the Japanese Tsunami was greater than initially anticipated and these figures show that the economic recovery is still on track, albeit it at a slower pace than had been expected.

Today the dollar could benefit from an increasing view in the FX market that Bernanke might not unveil a further round of asset purchases on Friday. While bond markets are still hoping for some announcement, especially in light of a recent run of weak US economic data, it is not clear how further bond purchases would necessarily spur economic activity. Instead, the Fed could use other measures to try to restore the transmission mechanism and get banks to start lending again.

What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.

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