Worries about global growth are back on the table after China, Germany and Britain all posted much weaker than expected economic data which could quickly replace optimism about the European Central Bank taking control of the debt crisis which has dominated dealing.
The Bank of England warned investors that the UK economy is unlikely to grow while Germany published yet another gloomy report on its industrial sector. But perhaps the biggest concern will be data from China showing a steeper than forecast drop in retail sales and industrial output in July, strengthening concerns about a contracting world economy.
Sterling
Mervyn King unexpectedly restored some of pound’s reliability in currency markets after he appeared to rule out using another interest rate cut to bring a flat lining British economy back to life. Speaking after the Bank of England revealed its quarterly inflation report the bank’s chief suggested that its position on monetary policy remains appropriate to deal with the economy’s second recession in four years, although he still gave investors plenty to feel discouraged about. The bank now expects the UK economy to record almost no growth this year and longer-term estimates were also slashed heavily.
US dollar
Fresh concerns about the health of the eurozone and British economy led to gains for the safe haven US dollar which climbed to a four-day high against the euro as investors turned a little defensive after consecutive days of risk taking following the forecast-beating US jobs data. The greenback may progress further after Chinese economic data strengthened fears about the world economy.
Euro
The euro’s popularity since the European Central Bank pledged more crisis-fighting support ebbed further after Germany published another worrying report on its industrial sector and Spain’s long-term borrowing costs inched higher. German industrial output sank by 0.9 per cent in June, a bigger fall than what analysts had anticipated and down sharply from the prior month’s 1.7 per cent gain.
Japanese yen
The Japanese yen experienced a somewhat muted reaction to a decision by the Bank of Japan to take no additional steps to loosen monetary policy following its two-day meeting. The yen had slipped ahead of the announcement on worries that the yen’s strength in recent weeks, which can accelerate deflationary pressures, would force policymakers to amplify yen-weakening measures such as asset purchases.