Sterling rallied to a six-week high against the dollar on Friday as the U.S. currency came under broad selling pressure. Weak U.S. housing market data has again highlighted weakness in the economy. Poor new new home sales helped push the pound up more than 1 percent on the day versus the dollar. But sterling slipped against the euro after a surprising rise in German business sentiment eased concerns about the euro zone economy. After a period of broad Euro strength it is again the German economy which markets are depending on to drag the continent back into relative prosperity.

The euro finished the week well up against the dollar, starting last Monday at $1.3050 and finishing Friday at $1.349. Earlier in the week dollar weakness stemmed from the prospect of another bout of QE from the Fed, as evidenced by the FOMC statement on Tuesday night, though the weakness on Friday was more associated with an improvement in investor risk appetite on account of better data (alongside the good US durable goods figures we also had an German IFO report which went some way to counter the impression of a slowdown coming from the PMI). Still, the recent upsurge in grumblings over sovereign debt issues in the eurozone is likely to continue this week, with the publication by the Irish government of its latest estimate of bailing out Anglo-Irish Bank.
 
There’s a mixed bag of data out this week, though not much today. Tomorrow, we get the final estimates of US and UK Q2 GDP. These aren’t expected to show much revision. In the UK, mid-week we get the latest sectoral lending data and mortgage approvals, all of which should be fairly week. The week ends on Friday (as always) with the US ISM and UK manufacturing PMI surveys. The US ISM is probably due a drop, after the very solid July reading, while we should also see a further decline in the UK measure.

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