The US economic data was mixed over the week, although the net bias was for slightly stronger figures than had been expected. The ISM index for the services sector rose to 57.0 in August from 54.8 in July, although all of the main sub-components weakened over the month while jobless claims fell to 310,000 in the latest week.

Wage costs were an important market focus over the week with second-quarter unit labour costs revised up to an annual rate of 4.9% compared with the previous estimate of 4.2%. The first-quarter figures were also revised up strongly to show a 9.2% annual increase. The Fed Beige Book reported some rise in wage costs, although there was also evidence of slower growth with notable weakness in the real estate sector.

The wages data created some fresh speculation that the Federal Reserve would have to increase interest rates again to curb inflationary pressure, although there were also suspicions that the data was distorted.

The Euro-zone PMI index for the services sector weakened to 57.1 in August from 57.9, but the German industrial data was stronger than expected over the week with production rising 1.2% in July. The Euro was subjected to position adjustment over the week and fell to lows around 1.27 against the dollar.

The yen was subjected to significant volatility over the week. The Japanese currency strengthened over the first half of the week after speculation that the Bank of Japan would take a tough stance on interest rates following the latest policy meeting. These gains were not sustained, but the yen drew fresh support from German Finance Ministry reports that G7 would discuss currencies at the annual meetings in mid September. These comments prompted strong yen gains to 116.0 against the dollar from 117.0 and the yen also strengthened to 147.5 against the Euro. The Bank of Japan left interest rates unchanged at 0.25%.
Source: VantagePoint Intermarket Analysis Software

The UK data had a generally weaker bias over the week with the CIPS index for the services sector weakening to 56.7 from 57.9, although the prices component rose slightly over the month. The retail and business surveys generally deteriorated as energy bills continued to rise, but the Halifax bank reported that house prices rose 1.0% in August.

As expected, the Bank of England left interest rates unchanged at 4.75% after the latest meeting, but there was a slight downgrading of market interest rate expectations over the week. The UK currency was subjected to some selling pressure on political tensions surrounding the timetable for Prime Minister Blair to resign and the UK currency weakened to 1.87 against the dollar from 1.90 last week. Sterling also depreciated to lows beyond 0.68 against the Euro before some stabilization.

The Australian and Canadian central banks both left interest rates unchanged during the week at 6.00% and 4.25% respectively. The Australian economic data was mixed, but a weaker than expected GDP report undermined currency sentiment. Energy and commodity prices weakened over the week with oil prices weakening to a 5-month low and the commodity-price weakness helped push the Australian dollar down to 0.7560 against the US currency from highs above 0.7710. The Canadian dollar was more resilient, but was unable to sustain gains beyond 1.1050 against the US currency and weakened to 1.1130 after weaker than expected employment data.
Source: VantagePoint Intermarket Analysis Software

Have a great day and a wonderful weekend.