Sterling
The Pound slumped yesterday, after worse-than-expected retail sales took traders by surprise. The monthly decline in June clocked in at -0.9%, while annualised sales slowed from a downwardly-revised 5.2% to 3.9%, nearly a whole percentage point below predictions. The only positive here was that the decline in sales was attributable to poor weather, not the ‘Brexit’ vote. Public borrowing printed -£2 billion below the expected deficit, but this failed to ease trader concerns.
After a strong start, the Pound is once again registering losses after the release of the first Markit PMIs to measure activity post-referendum. The indices have all shown sector contraction, with the services and composite scores falling further-than-forecast.
Euro
Despite yesterday’s weakness, the Pound to Euro exchange rate quickly recovered losses made after the retail sales figures were released. Euro appetite remained weak thanks to the European Central Bank’s (ECB) monetary policy meeting. While the Governing Council left policy untouched, citing the need for more time to assess ‘Brexit’ concerns, the Euro closed the day down around -75 pips. This was because ECB President Mario Draghi indicated that more policy easing could be implemented if a Brexit slowdown materialised.
A slew of Eurozone PMIs have boosted the Euro after showing that the UK’s Brexit uncertainty seems to have had little effect on the currency bloc. Measures across the board increased further-than-expected, with the only exception being a -0.9 point decline for Eurozone manufacturing, although the index still remains in positive territory.
US Dollar
The Pound may have been weakened yesterday, but ‘Cable’ still managed to recover to within opening levels by the end of the day. With the focus on the European Central Bank’s policy meeting, the US Dollar was left soft overall. Even positive domestic data was largely ignored, despite lower-than-expected initial jobless claims and continuing claims figures and a nine-month high for sales of existing homes.
There is very little US data due out today. The Markit manufacturing PMI could provide some movement, but the measure is not as influential as the ISM manufacturing index, so market reaction could be muted.
Canadian Dollar
A correctional uptrend boosted the Canadian Dollar yesterday, with some strong domestic data working to counter the weakening effects of WTI oil trending below US$45 per barrel. Wholesale sales had been expected to show growth of just 0.2%, but instead printed at 1.8%.
Today’s Canadian data is likely to cause significant market volatility for the ‘Loonie’. Retail sales figures for May and June’s consumer price index are both forecast to weaken on previous readings, promising strong headwinds for the Canadian Dollar. The ‘Loonie’ is already weak in anticipation of the softening data.
Australian Dollar
The bigger-than-expected decline in monthly UK sales kept the Pound to Australian Dollar exchange rate soft, although the UK unit was able to claw back some losses during the session.
A report from the Treasury provided support for the Australian Dollar after suggesting that Brexit impact upon the Australian economy had been muted. Although it stated that the long-term impacts were hard to forecast, it noted that there were still monetary and fiscal policy options available to combat weakness.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate remained strong yesterday, although trading was choppy. The ‘Kiwi’ advance was somewhat contrary to the data, however. The Reserve Bank of New Zealand’s (RBNZ) much-anticipated, yet short notice, economic update clearly suggested to markets that a rate cut was likely at one of the upcoming policy meetings. Ironically, giving the strength of the local currency, one of the issues highlighted was the fact that the New Zealand Dollar was overvalued.
Data Released
13.30 CAD Retail Sales (MoM) (MAY) 0.0%
13.30 CAD Consumer Price Index (YoY) (JUN) Medium 1.4%
13.30 CAD Bank of Canada Consumer Price Index Core (YoY) (JUN) High 2.0%
14.45 USD Markit US Manufacturing PMI (JUL P) High