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German economy almost stalled in Q2

We are coming up to what used to be one of sterling’s most influential economic indicators: the consumer price index. Inflation has historically been the Bank of England’s defining monetary policy guide. Yet, after 18 months of inflation that is at or above the 2 to 3 percent target band and no action from the MPC, it is now crystal clear that hold outs for hikes here will be burned, So, even if we do get a surprise jump in the July CPI figures; the market will be instantly dubious of its impact as the BoE has maintained a dovish bearing. CPI is forecast to come in at 4.3%, up from June’s 4.2%.
Data 9.30: CPI y/y; BoE Inflation Letter.


Is it an encouraging sign that the ECB has boosted its presence in the financial markets in a big way or a dis-coursing one? Monday, the central bank reported that it had purchased a record 22 billion euros worth of gov-ernment bonds (presumably with heavy concentration in Spanish and Italian debt given the drop in their respec¬tive yields) through this past Thursday. In 66 weeks of the Securities Market Program, that is the most progres¬sive effort by policy officials to stabilize the market backdrop. To the optimist, this is a sign that policy officials are willing to do what it takes to snuff the financial crisis and turn the regions largest collective economy around. Yet, to the sceptic (there seem to be more of those nowadays), this is merely a sign that conditions continue to deteriorate and necessitate further desperation moves. It’s all about perception. In the meantime, German GDP was printed this morning showing that the German economy almost stalled in the second quarter as the regions sovereign debt crisis weighed on confidence. They posted figures of 0.1% down from forecasts of 0.5%.
No major data today.


Builders probably began work on fewer houses in July, showing residential real estate is failing to contribute to US growth two years into an economic recovery, economists said before a report today. According to econo¬mists, housing starts fell 4.6 percent to 610,000 annual rate. Falling sales, foreclosures and a lack of jobs may keep delaying a rebound in homebuilding, depriving the world’s largest economy of a source of strength seen in the early stages of past recoveries. Concern over housing is prompting banks to maintain strict mortgage lend¬ing rules and was one reason the Federal Reserve said it would hold borrowing costs at a record low until at least mid-2013.
Data 13.30: Building Permits.


Swiss franc:
• The Australian dollar fell against most of its 16 counterparts after minutes of the central bank’s August 2nd meeting showed policy makers were concerned that turmoil in financial markets could slow global economic growth.


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GBP/USD                        1.6340

GBP/EUR                        1.1350

EUR/USD                        1.4395

GBP/JPY                         125.60

GBP/AUD                        1.5650

GBP/NZD                         1.9660

GBP/ZAR                         11.6610

GBP/CHF                         1.2780

GBP/CAD                        1.6060

GBP/SGD                        1.9660

GBP/THB                         48.70

GBP/HKD                        12.7420

red-down; blue-up (snap shot)

These rates are for indication purposes only.

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John Paul Georgiou

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