The pound remained range bound after Friday’s mixed US employment numbers, Non-farm payrolls fell to -125K from 431K while the unemployment rate dropped to 9.5%, against a forecasted increase of 9.8% from 9.7% in May. The data created a good deal of uncertainty and volatility in currency markets but ultimately kept the major crosses range bound.

Thin trading volumes on Monday saw the pound fall across the board due to weaker economic data and lower investor sentiment towards Sterling. UK PMI services data fell to 54.4 in June, analysts had expected a drop to 55 from the 55.4 reading in May. Stock markets were dragged lower by concern of the future of BP and further weighed on sterling. BP in addition to the costs of the Gulf oil spill was hit with a record fine for market manipulation from a case dating back to 2007.  Risk aversion came from the perceived risks to BP’s balance sheet and speculation that the U.K. government was planning for the possibility of the oil company going into administration and due to the ever present concern regarding a global slowdown in economic recovery.

Economic data from Britain has not been overly supportive this week, PMI services fell more than expected to 54.4 from 55.4 in May. BRC shop prices and Halifax house price data both came out to the down side and weighed on the pound. Industrial Production was the only release providing an opportunity for some strength although the gains were short-lived. The Bank of England kept interest rates on hold at 0.5% and made no changes to the £200bln asset purchase scheme. While no statement was issued with  the release the central bank decision had a supportive effect on the pound. Despite the volatility in trade cable was extremely range bound on a weekly trend although traded at a weekly low versus the resurging euro.

The trend for the euro has been one of recovery with the single currency appreciating gradually throughout the week against the dollar and the pound. Economic data from Europe and the announcement from the Euro-zone regarding the implementation of stress testing on EU financial institutions bolstered investor confidence and improved sentiment towards the euro. German and EU PMI services data both came out better than expected while the final release of EU GDP for the first quarter showed no adjustment and suggested some stability was returning to the EU.

The European Central Bank kept interest rate unchanged at 1.0% in line with what markets had expected. In the press conference Trichet took on a mildly hawkish tone, the president  said the governing council felt interest rates remained appropriate and inflation expectations remained firmly anchored. On growth Trichet said that recent economic indicators were pointing to a strengthening in economic activity during the last quarter. The ECB also welcomed the stress tests to be conducted.

The dollar remained weak after Fridays employment data and thin trading volumes created by the Independence day holiday on Monday. A shift in confidence towards the euro and concern that the US economic recovery may not be as stable as initially thought weighed on the greenback. US ISM non-manufacturing data fell more than expected to 53.8 from 55.4 adding to the view that the United States will see some negative impact from the EU debt crisis and global slowdown. US weekly jobless numbers showed an improvement from the previous weeks unexpected increase in claims and gave the dollar some support but with a lack of further economic data market focus stayed on the central banks in Europe and the UK and saw the dollar at the mercy of investor confidence.

Next Week

The stability of a global economic recovery remains in focus and concerns that sovereign debt issues and weaker economic data will continue to play on market sentiment. Key for the pound will be the release of UK GDP and jobless claims data, growth and employment are considered important factors in the recovery process. With most of the UK data weighted to the early part of the week the pound will take its cues from the euro and US dollar as the week progresses. The ECB monthly report will be scrutinised to see if any further detail can be gleaned regarding inflation and growth expectations for the EU and for an update on the sovereign debt position of countries of concern.

US data has recently called the stability of the US recovery into the question and to that end PPI, CPI and consumer sentiment figures will be noted as markets look for positive data to support a continued recovery.

Economic Data Releases