Sterling falls as recovery hopes fade

Increased risk appetite lifted the Euro and the US Dollar on Friday after strong Chinese trade data soothed fears about the global slowdown. Figures showed Chinese imports swelled over 35% in August, much more than the 25% predicted by economists.

After benefitting from safe status that strengthened the Japanese Yen, the Japanese government have revealed a huge $10.9bn stimulus package and reiterated the possibility of intervention if the Yen continues to strenghten. A strong Yen has a detrimental effect on the Japanese economy due to the volume of exports, so any intervention will be aimed at weakening the currency.

The better than expected Chinese data, improved US jobs data at the end of last week and stronger than expected Japanese GDP sparked interest in what foreign exchange dealers consider to be "riskier" currencies such as the Austrailan dollar, New Zealand dollar and South African rand as safe haven currencies such as the Swiss Franc came off recent highs.

An advantage for those selling Euros and anyone selling US Dollars as Sterling had a poor week last week and fell against both the US Dollar, the Euro and also the New Zealand dollar on Friday as uncertainty over the UK economic outlook persisted and concerns over spending cuts mount. A desperately disappointing set of UK trade figures for July weighed on Sterling and underlined fears about a sharp slowdown in the third quarter.

This US advance retail sales report tomorrow is expected to show a gain in August; Wednesday brings the first look at US manufacturing activity in September followed by the Philly Fed's regional manufacturing PMI on Thursday. Consumer inflation is in the spotlight on Friday and is expected to register another gain.

In the UK, August CPI is released on Tuesday and is expected to moderate at 3.0% while house prices is the other major focus in the UK this week amid signs of renewed declines.