The US economy grew by just 0.3% over the same three months.

A different two-cent range and a different outcome took sterling lower but only on the second attempt. Last Monday’s two lost cents had been recovered by Thursday morning. It was not until London took the bank holiday Monday off that the longer-lasting damage was done.

In a week otherwise bereft of useful UK statistics Friday’s first revision to second quarter gross domestic product (GDP) took centre stage. Having initially estimated quarterly growth of 1.1% the Office for National Statistics upgraded its guess to 1.2%. Surprisingly, there was a negative reaction to the good news. The sell-off was only brief but it was enough to demonstrate the market’s confusion about sterling. It is almost as if investors saw the strong GDP figure as a sort of economic swansong. They believe the chancellor’s austerity budget will weigh on the economy and that the numbers will get worse; they just don’t know by how much.

If spread trading investors are in two minds about sterling they are equally confused about the US dollar. We had become used to the idea that bad news for the global economy meant good news for the safe-haven dollar and yen. On Tuesday that link appeared to snap. It was announced that existing (as opposed to new) home sales had slumped by 27% in July, with sales running at annual rate of just under four million. With just over four million homes on estate agents’ books it means a 12-month overhang of unsold second-hand real estate. As one would normally expect, the horrid news sent investors scurrying for safety but they went for the yen, not the dollar. It was the same pattern for the rest of the week. Not until this Monday did the dollar show signs of recovery. Even then it was not clear whether the rebound marked a return to form or was just a fluke.

CFD investors looking for bad US economic news did not have to content themselves with the fall in existing home sales. They found plenty more ammunition among the ecostats. The Richmond Federal Reserve’s manufacturing index fell by five points to 11. Durable goods orders went up by only 0.3% in July; excluding transportation items (trains and boats and planes) orders were down by -3.8% on the month. New home sales fell by more than 12% for the second month running. The week’s toughest call for the dollar should have been Friday’s second quarter GDP figures. The previous estimate of 0.6% quarterly growth was revised down to 0.3%. In the event, the dollar received only mild punishment, perhaps because investors were relieved the figure was not worse.

Sterling and the dollar both face challenges this week from the purchasing managers’ indices, an important barometer of how the manufacturing and services sectors are performing. For the dollar the biggest test of the month comes with Friday’s employment data, specifically the change in non-farm payrolls. Last month’s figure was a disappointment and this latest one will probably not be much better. What will be instructive is how the market reacts to an off-target number. Are we back to normal, buying the dollar on bad global economic news, or are weak US numbers now a reason to sell? Until we find out, the safest risk management strategy is (as is so often the case) a hedge.

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