It is 1992 all over again for GBP/USD

Overall: The Bureau of Economic Statistics reported that spending grew just 0.2% in July while incomes fell 0.7%, data that would normally point the dollar lower. However, much better-than-expected readings from the Chicago Purchasing Managers (57.9 vs. 50.1 expected) and the Reuters/University of Michigan's reading on Consumer Sentiment (63.0 vs. 62.0 expected) supported the dollar even as oil gained. In real (inflation adjusted terms) overall personal spending declined 0.4%, the most in four years, with purchases of durable goods declining 1.6% and non-durable goods declining 0.9% while spending on services was unchanged.

The euro (Euro/Usd) declined after Euro Zone inflation came in at 3.8%, slightly lower than was expected, a sign that oil's drop from the mid-July peak is easing inflationary pressures. The European Commission in Brussels said today that an index of executive and consumer sentiment in the economic outlook dropped to 88.8 from 89.5 in July. The report also indicated that European companies and consumers are less worried about rising prices. Business selling-price expectations fell to 17 in August from 20 in July while consumers' outlook for prices dropped to 22 from 30, falling below its average reading for the past 18 years.

The cable (Gbp/Usd) has had its biggest monthly drop since the pound was forced off the European Excahnge Rate Mechanism in September 1992. London research group GfK NOP said its confidence index rose 3 points from July's minus 39, a reading that was the lowest level since the firm started tracking the data in 1974.

The aussie (Aud/Usd) received support on Thursday after a report from the Australian Bureau of Statistics said second quarter capital spending jumped 5.7%, which may have led some speculators to believe the RBA might hold off on reducing borrowing costs at its September 2 meeting. The pair resumed its downward trend during August's last trading session and closed the month with a 8.9% loss to the greenback.

The cad (Usd/Cad) rose after Statistics Canada said that GDP rose 0.1% in June and by the same amount in the second quarter of 2008 following a 0.2% decline in Q1 that was twice as large as previously estimated.The pair has closed the month just above a trend line of resistance dating back to September of 2002.

The swissy (Usd/Chf) rose as traders moved away from equities and into Treasuries, which advanced for the week as traders increased bets the Federal Reserve would leave interest rates unchanged through the end of the year.

The yen (Usd/Jpy) fell as traders moved away from equites on Friday. The S&P looks to lose around 3 points for the week and USD/JPY has lost about 120 pips.

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