The US dollar index, the dollar value against a basket of currencies, moved to a one-year high this week. The dollar moved higher as the economic outlook for the US continued to contrast with data and the outlook for the eurozone. The minutes of the central bank meetings in the US and UK showed bigger discussions taking place between policymakers over the need to normalise policy. Flash estimates for a manufacturing survey in China dropped to lows not seen in three months after jumping to 18-month highs in the prior release. Concerns over the outlook for global growth will not diminish unless China is seen as strong, alongside the UK and US. The eurozone will need the help of the global economy to pull through damage that is likely to be inflicted upon its economy via trade sanctions with Russia as data out this week in the eurozone continued to reveal a struggling economy.

Euro

The German central bank warned this week that 2014 growth forecasts could potentially be revised lower after second quarter growth rates fell into negative territory across much of Europe. Trade figures released early in the week helped to reveal some pressure going into the release of the flash PMI surveys. The trade figures showed exports rising by three per cent, but the euphoria was quickly over as the survey on the manufacturing and service sectors came in below forecast, but still in expansion. That suggests that eurozone growth in both sectors continues to struggle with a recovery, but more noticeable was the surveys showed firms dropping prices for the 29th consecutive month. This will heighten concerns over inflation and inflation expectations in the week ahead.

Sterling

Confusions surrounded initial trade in sterling as comments from the Bank of England’s Governor over raising rates before wage growth recovery appeared to contradict what was written in the central bank’s quarterly inflation report. That confusion was cleared somewhat when the BoE minutes were released and showed dissent amongst policy makers for the first time in three years. Economic data seemed to support the view that the economic recovery in the UK continues.

US dollar

The US dollar jumped to 11-month highs against the euro, four-month highs against sterling and five-month highs against the Japanese yen this week. The rebound for the dollar was initiated by better-than-expected data on the US housing market. Sentiment has been improving and that finally trickled down into real economic data this week when housing starts jumped by over 15 per cent. All of this good economic news on the housing market helped set the stage for the release of the FOMC minutes, which were decidedly more upbeat. The minutes showed some policymakers ready to consider a move towards a more normal monetary policy.

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