Headlines
Pound weakens on soft retail numbers –
Sales down -0.2% MoM in June.
GBP/EUR down -120 pips –
Tsipras regains a few supporters.
GBP/USD declines –
US jobless claims hit 42-year low.
GBP/CAD falls from 6.5-yr high –
‘Kiwi’ rallies as RBNZ cuts 25bps not 50bps.
Sterling
A disappointing retail sales report took the wind out of Sterling’s sails yesterday. The high-flying Pound, which had been trading close to multi-year highs against a number of its most-traded currency peers bounced lower following the latest retail report from the Office for National Statistics (ONS), which showed that spending softened by -0.2% in June. Analysts had been primed for an increase of +0.4%. Over the year retail sales slowed from 4.7% to 4.0%, confounding calls for an acceleration of 5.1%.
The disappointing retail figures led to a slight reduction in Bank of England rate hike bets but the majority of market players still expect Governor Mark Carney to start tightening monetary policy by March next year. British fundamentals remain solid and second quarter growth is predicted to come in at 0.7% next week.
Euro
The Euro recovered by around 120 pips against the Pound yesterday as soft UK retail sales weakened the appeal of the UK tender.
Markets were also relieved to hear that Greek PM Alexis Tsipras managed to claw back three defectors in the latest parliamentary vote on austerity measures. 260 MPs voted to pass the new economic reforms, whilst 63 opposed. Out of the 63 dissenters 36 were MPs from Tsipras’ Syriza party, which was a little better than the 39 officials who rebelled in last week’s vote.
The single currency was also supported by talk of mild debt relief in Greece, which was seen to bode well for the Hellenic Republic returning to fiscal sustainability some day.
US Dollar
Sterling plunged through technical support levels against the US Dollar yesterday. First as British retail sales missed market expectations and second as US jobless claims fell to a 42-year low of 255,000.
US investors were buoyed by the much-better-than-expected labour market report and subsequently calls were upped for the Federal Reserve to start raising interest rates. Considering that the United States of America had a population of 211.9 million in 1973 and currently boasts a much larger total of 318.9 million, yesterday’s figure is even more impressive than on first glance.
Canadian Dollar
The Pound lost out on around one-and-a-half cents against the Canadian Dollar yesterday, the bulk of the declines taking place in the minutes directly following the below-forecast UK retail sales report.
The ‘Loonie’ also garnered support during the afternoon when a domestic report showed that Canadian retail sales rebounded from a -0.1% contraction in April to expand by +1.0% in May.
Australian Dollar
It was a similar story for the Pound against the Australian Dollar. Although Sterling had been trading close to its highest level for six years, GBP/AUD plummeted -150 pips yesterday morning in reaction to the underwhelming UK consumer spending figures.
However, the prospect of further monetary loosening from the Reserve Bank of Australia combined with the potential for stock market volatility in China to impact cross-border trade means that the risk-sensitive ‘Aussie’ could easily succumb to further losses over the next few weeks and months.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate softened by around four cents yesterday as Antipodean investors breathed a sigh of relief that the Reserve Bank of New Zealand only opted to cut rates by -25 basis points to 3.00% rather than by -50 basis points to 2.75%, as some traders had anticipated. However, the ‘Kiwi’ does look likely to weaken in the long run because RBNZ Governor Graeme Wheeler noted that there would probably be further cuts to the benchmark cash rate.
Data Released Today
09:00 EUR Markit Eurozone Composite PMI (JUL P) Medium 54
09:30 GBP BBA Loans for House Purchase (JUN) Medium 43300
15:00 USD US Manufacturing PMI (JUL P) Medium 53.6