Spread Betting Update - The US Dollar Has an Uncomfortable Week

Posted on | July 21, 2010 |

Fed believes it could be ‘five to six years’ before the economy returns to normal.

Twice at the beginning of last week sterling tested support. Both times it rebounded, with Tuesday’s bounce setting it on the way to a peak on Thursday. A profit-taking sell-off on Friday brought sterling back down and it was still hovering around that level when London opened this morning.

The dollar had an uncomfortable week, undermined by another string of lacklustre US data. At -$42.3 billion the trade deficit was worse than expected. Retail sales fell again, this time by -0.5% in June. Producer prices were down by a similar proportion, halving their annual rate of increase to 2.8%. Federal Reserve Banks in Philadelphia and New York reported a slowdown in manufacturing activity in their districts. The Philadelphia Fed’s index went down from 8.0 to 5.1; New York’s manufacturing index also came in at 5.1 but to get there is had to plunge. all the way from 19.6. Friday’s consumer price index figures were in line with forecast, showing a further slowdown in inflation to 1.1%.

There was a belated reaction to the minutes of the monetary policy-making Federal Open Market Committee after analysts had looked more carefully at its contents. Tucked away in the middle of the 21-page report, was the following wordy warning; ‘Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives; most expected the convergence process to take no more than five to six years.’ The otherwise dull sentence ended with a bombshell: It could take the American economy five or six years to get back onto a normal footing.

In the spread betting markets, the pound did, in the end, make it beyond the resistance that had held it below $1.52 but it did not get far.

Its challenges this week will include Tuesday’s public sector borrowing figures, Wednesday’s minutes of the July MPC meeting, Thursday’s retail sales and Friday’s first estimate of second quarter GDP. They all present potential pitfalls for sterling.

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