Sterling
British data yesterday showed that retail sales flatlined in September, creating a year-on-year expansion of 4.1%. The results were slightly lower-than-anticipated due to rising clothes prices and an unusually warm September, which weighed on demand for autumn and winter clothing items. However, sentiment was not negatively impacted by the report because it featured an upgrade to August’s figures and it is now believed that retail sales expanded 5.4% in the third quarter, which marks the strongest three months of growth since late 2014.
It is expected that retail growth will cool over the next year as the impact of the weaker Pound, higher import costs and rising inflation eat into consumers’ purchasing power and this could seriously hamper the domestic economy. However, it would be amiss to disregard the capacity of the UK consumer to fight through the anticipated price storm and continue shopping: we Britons have a veracious appetite for… well, whatever we can get our hands on really.
Euro
The Pound to Euro exchange rate remained flat on the day yesterday, however, the single currency did spike temporarily during European Central Bank President Mario Draghi’s press conference.
The ECB left rates on hold at 0.00% and maintained its negative deposit rate of -0.40%, as most analysts had anticipated. The accompanying press conference was equally neutral and unbinding, however, markets moved quickly to buy the Euro when Draghi mentioned that policymakers had not discussed extending the bank’s QE scheme past its projected end date of March 2017. The single currency swiftly slid back later on when the ECB Chief stated that the bank had also not discussed tapering the stimulus programme.
Although tapering was not discussed, Draghi said it would be ‘unlikely’ for QE to be cut from €80 billion a month to zero in one clean sweep. He also mentioned that new economic projections in December would give more clarity on how the Eurozone economy was performing. It now seems likely that we will find out in December whether the ECB is going to prolong its QE scheme in March 2017 or begin winding it down.
US Dollar
The Pound to US Dollar exchange rate softened by around a third of a cent yesterday as markets reacted to the latest US Presidential election televised debate, which most political analysts viewed as a success for status-quo Democratic candidate Hillary Clinton over her outlandish Republican rival Donald Trump.
During the debate Trump refused to commit to accepting defeat if the count showed that, as expected, more Americans voted for Clinton. Although original, polls do not suggest that Trump’s anti-authority statement did him any good in convincing voters that he is fit to run the country. Trump’s interventionist and unusual policies are widely seen as negative for the US economy and Federal Reserve rate hike bets, which explains why the ‘Greenback’ rallied following the debate.
Canadian Dollar
Sterling strengthened by over half a cent against the Canadian Dollar yesterday, however, the ‘Loonie’ could easily recover this afternoon if Canadian CPI data comes in positively as expected. Markets are primed for an acceleration in Canadian consumer prices from 1.1% to 1.4%, which would probably be enough to lift the North American currency versus the Pound.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by around 150 pips yesterday as negative Australian labour figures weighed on demand.
The headline unemployment rate actually dipped from 5.7% to 5.6% in September but sentiment was damaged by the figure because it was a drop in the number of people looking for work, not a rise in job creation, that brought about the move. In fact, 9,800 jobs were lost, which confounded forecasts of 15,000 gained.
New Zealand Dollar
GBP/NZD ticked higher yesterday afternoon as global risk appetite was knocked slightly off course by ECB President Mario Draghi’s suggestion that stimulus could be cooled rather than extended next March. This weighed on demand for the volatile ‘Kiwi’ Dollar, which is often buffeted by general market risk trends.
Data Released
09:30 GBP Public Sector Net Borrowing (Pounds) (SEP) Medium 8.5b
13:30 CAD Consumer Price Index (YoY) (SEP) High 1.4%
15:00 EUR Euro-Zone Consumer Confidence (OCT A) Medium -8