Sterling
Sterling sprung into life yesterday, leaping higher across the board in reaction to some better-than-anticipated UK retail sales figures.
The Office for National Statistics (ONS) announced that sales volumes rose 1.5% in July, smashing forecasts of 0.1% in a sign that consumers’ immediate reaction to the ‘Brexit’ vote was far less negative than initially feared. The upbeat monthly gain brought the annualised print up from 3.9% to 5.4% as warm weather boosted clothing sales and the weak Pound persuaded foreign tourists to splash out on luxury items.
Consumer spending is a key part of the British economy, accounting for over 60% of total economic output, and if Britons maintain the current trend over the second half of the year then there is every chance that the UK could avoid falling into recession. Another likely consequence of retail sales holding up for the rest of 2016 is that it may well persuade policymakers at the Bank of England not to embark on further stimulus measures. It is this caveat that prompted a surge in demand for the Pound during yesterday’s session.
Euro
Across the Channel in the Eurozone data showed that consumer prices plunged -0.6% during the month of July, however, the headline yearly print remained steady at 0.2%. The lowly score represents a troubling reminder to the European Central Bank as to the perceived ineffectiveness of its large-scale asset purchasing programme. Some analysts argue that QE has reached its price pressure boosting limits, while others implore the central bank to act further in order to support demand. Either way: the tepid CPI figure did little to bolster the appeal of the single currency.
Sterling managed to register gains of over half a cent versus the Euro yesterday – but it was the sanguine UK retail numbers rather than the underwhelming Euro inflation index that drove GBP/EUR higher.
US Dollar
The Pound pressed further ahead against the US Dollar yesterday to reach a fortnightly high as impressive domestic retail sales volumes weighed on Bank of England stimulus bets and painted a slightly rosier picture of the post-‘Brexit’ economy than many had bargained for.
Sterling had already rallied through psychological resistance at the start of the week due toa drop-off in Federal Reserve rate hike speculation.
Although the July UK retail report printed much more positively than most traders had expected, the possibility of further economic distress remains. As the initial impact of Sterling’s post-‘Brexit’ depreciation softens and the extent to which business investment has been hampered by the vote becomes clearer, we could potentially see consumer demand cool and hiring patterns deteriorate.
The Pound to US Dollar exchange rate is currently trading three cents higher than it was at the start of the week but many major players in the FX market still predict that ‘Cable’ will hit 1.25 by the end of the year. Of course a run of positive retail reports would certainly alter that view, but as things stand, like the British Olympic team, GBP/USD is currently performing better than many analysts had anticipated.
Canadian Dollar
Sterling rallied by around half a cent against the Canadian Dollar yesterday thanks to the morning’s upbeat UK retail sales report.
The direction of GBP/CAD during today’s session is likely to be dictated by a couple of key ecostats emanating from the North American nation. Canadian consumer prices are tipped to have decelerated from 1.5% to 1.3% in July, which is liable to damped demand for the ‘Loonie’. However, the negative impact of slowing consumer prices could be wiped out if the Canadian retail sales report shows an acceleration in sales volumes from 0.2% to 0.5% as expected.
Australian Dollar
The surprisingly resilient UK consumer spending numbers outweighed the ‘Aussie’-positive effect of better-than-anticipated Australian labour market figures yesterday, causing the Pound to Australian Dollar exchange rate to appreciate by just under a cent.
New Zealand Dollar
The Pound’s market-wide rally continued versus the New Zealand Dollar yesterday as BoE stimulus bets were turned down a notch following the outperforming British retail sales report.
Data Released
13:30 CAD Consumer Price Index (YoY) (JUL) High 1.3%
13:30 CAD Retail Sales (MoM) (JUN) Medium 0.5%