Dollar weakened to its lowest level of the year against the euro yesterday while moving above 1.65 against the pound. With traders coming back to their desks after their summer holidays recent rises in risky assets were backed with equity markets slinking higher.

Data was also positive for the pound as industrial production rose by 0.5% with the manufacturing measure higher by 0.9%. This shows obviously a good start for the 3rd quarter if the year and give credence to the report from the NIESR that UK GDP rose by 0.2% in the 3 months to August. Should this be reflected in official statistics this would be an indication that the recession would be over in the UK; it does not mean however that it would be the last quarter of negative growth. Many economists are pushing the stagnation doctrine at the moment and it could be Q2 2010 until we see meaningful jumps in data.

We have also seen green shoots in the jobs market with the increase in hiring for permanent and temporary positions for the first time in 18 months. This is not official data and is only a survey and given the increase in people entering the jobs market (school, college and university leavers) unemployment figures in this time of the year are always viewed with a pinch of salt and we do expect jobs figures from the UK to breech 2.5m people for the first time since 1995 next week.

One shadow that has hung over sterling since the beginning of the year is the level of government debt and its impact on the UK’s sovereign credit rating. Moody’s are due to announce today that the UK government debt appears ‘affordable’ and given the signs that all political parties acknowledge that this is something that needs to be reduced. This of course goes against the S&P downgrade from May.

Data today includes Nationwide Consumer Confidence, which has been released at 63 vs 61 expected. German CPI has also been published and came In on consensus of 0.0%. We also have UK Trade Balance, BRC Shop Prices and the Fed Beige Book with continued sterling volatility ahead of tomorrow’s Bank of England meeting expected.

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