Sterling
The Office for National Statistics (ONS) reported that the UK economy expanded 0.6% in the second quarter, marking a sturdy acceleration on Q1’s 0.4% and beating forecasts of 0.5%. However, the upbeat headline readout was not enough to lift demand for the Pound. This is because almost all of the GDP uptick took place in April, with data from May and June suggesting that output cooled in anticipation of the June 23 referendum.
Chancellor Philip Hammond responded to the figures by declaring that the UK’s economic fundamentals are robust, however, a report from the Confederation of British Industry (CBI) detailed how British retail sales plunged at their fastest rate for four years following the ‘Brexit’ vote. The CBI announced that 38% of retailers had witnessed a slide in sales volumes since the vote, which brought the retail index to -14; its lowest level since January 2012.
Euro
The Pound softened slightly against the Euro yesterday despite UK GDP data showing that industrial output advanced at its fastest pace since the last millennium in the second quarter. The 2.1% jump in industrial production was the best figure since 1999 but the figures show that almost all of the growth took place in April, before the sector flattened in the run-up to the referendum. Taken alongside the dreary retail sales report from the CBI, which saw sales volumes slow at the fastest pace for four years, the GDP report was seen as a slightly bearish signal for Sterling.
The main events on the economic calendar today are the German unemployment report and the German consumer price index. The jobless rate is not expected to have much of an impact on GBP/EUR because it is predicted to have remained at a record low of 6.1% for the tenth consecutive month in July. However, the CPI indicator is often more volatile and we could see the single currency rally if inflation prints above the consensus of 0.3%. Conversely, the Euro could slide if price pressures are seen to have cooled.
US Dollar
‘Cable’ ticked higher by around 85 pips yesterday following the Federal Reserve’s announcement that it was leaving interest rates on hold between 0.25%-0.50% in July. The US central bank noted that near-term outlooks to the economic outlook had deteriorated and cheered a recent uptick in labour market activity. However, the Fed statement stopped short of indicating that a rate hike was on the cards in September and this allowed Sterling to strengthen against the US Dollar.
Earlier in the day Sterling had mounted a minor rally in response to data showing that US durable goods orders shrank unexpectedly by -4.0% in June. Markets had been primed for a score of -1.4% and were therefore moved to sell the ‘Greenback’ following the disappointing print.
Canadian Dollar
The Pound to Canadian Dollar exchange rate rallied by almost a cent yesterday in response to data showing that US crude stocks jumped 1.67 million barrels last week, confounding hopes of a 2 million barrel fall. The worrying DoE report corroborated fears that the current supply glut could be worsening and this deterred traders from investing in the commodity-correlated ‘Loonie’.
Australian Dollar
Sterling leapt higher by around 150 pips against the Australian Dollar yesterday, influenced by a report showing that Australian consumer prices cooled from 1.3% to a 17-year low of 1.0% in the second quarter. The CPI report, which printed slightly lower than analysts’ forecasts of 1.1%, was seen to increase the chances of a rate cut from the Reserve Bank of Australia. However, it was not considered soft enough to guarantee further stimulus from the RBA, suggesting that the ‘Aussie’ has further to fall if the central bank does in fact act decisively next week.
New Zealand Dollar
The Pound managed to avoid defeat against the New Zealand Dollar following the morning’s UK GDP and retail sales numbers.
GBP/NZD jumped 100 pips when the Federal Reserve announced it was leaving monetary policy on hold in July but sounded a slightly hawkish tone regarding future rate decisions.
Data Released
08:55 EUR German Unemployment Rate s.a. (JUL) High 6.1%
13:00 EUR German Consumer Price Index (YoY) (JUL P) High 0.3%