Daily currency report

The press conference between France’s President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel underscored the need for convergence on fiscal policies and provided a very loose framework on how this might be achieved. The comments stop short of more substantial steps towards conversion, such as Eurobond issuance, but markets had been warned not to expect this. In the UK, inflation data ticked higher than forecast providing some underlying support for the pound. US PPI will likely be overshadowed by the CPI and weekly jobless claims report, although the jump in industrial output will offer a form of relief to those fearing a deeper double dip. In Switzerland, all eyes will be on the government meeting and announcement as it is expected to announce ways in which it will help the Swiss National Bank curtail the strengthening franc.

Sterling

Sterling saw support after CPI data was released slightly above expectations. The annual increase remained well entrenched above four per cent and as is required in such cases, every three months, prompted a letter of explanation from the Bank of England to the Chancellor. The upward tick in inflation reminded investors that an “all clear” sign for a rate increase is not a certainty.

US Dollar

The dollar is trading lower, more on euro and sterling strength than dollar weakness based on improved risk appetite. Asian equity markets are mixed, but economic data seen for the US was encouraging. There was a tad bit of inflation seen in import price data and industrial output jumped to its highest level in seven-months. Rating agency, Fitch, reaffirmed its triple A rating of US government debt, but said that failure of the joint committee to come up with $1.2 trillion worth of austerity measures this fall could prompt it to lower its outlook.

Euro

The euro declined after German GDP figures showed the economy barely holding on to growth in the second quarter. The disappointing growth figures triggered a decline in the euro that was exacerbated by nerves going into the Merkel-Sarkozy meeting. The two leaders had warned markets not to expect discussion over Eurobond issuance and indeed they did not talk about it, much to the dismay of many who had hoped for a more meaningful step forward. European markets have not really had a chance to trade on the outcome of the press conference, but while the leaders have proven that they recognise the problem, there does not seem to be real beef in finding a solution.

Japanese yen

The yen is trading slightly higher as the Nikkei trades in negative territory. The yen’s increase could also be as a result of nervousness over what will take place in Switzerland.

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