Pound Steady Ahead of UK Retail Sales Report
The Pound recovered some of its recent losses yesterday as investors locked in profit following Tuesday’s surprising dip in UK inflation.
Sterling suffered following the 2.6% June CPI print, which underwhelmed expectations of inflation remaining at a four-year high of 2.9%. However, there was little fresh stimulus for Sterling traders yesterday and this allowed the Pound to inch higher as investors cashed in on Tuesday’s trades.
The main UK event to keep an eye on today is June’s retail sales report, which is tipped to come in strongly at 2.5%, up from 0.6% in May. Consumer spending is key to British growth, so a robust figure could help assuage fears that falling real wage growth (inflation outpacing earnings) could weigh on the UK economy.
Volatility Expected in GBP/EUR as ECB Delivers Policy Commentary
Profit-taking helped the Pound rise by around a third of a cent versus the Euro yesterday ahead of this afternoon’s highly awaited policy decision from the European Central Bank.
The market consensus suggests that the ECB will refrain from altering interest rates or its quantitative easing scheme, but traders expect President Mario Draghi to drop some hints on future policy.
The single currency has posted sturdy gains versus the Pound and the US Dollar over the past few months, partly owing to expectations that the ECB will begin tapering its stimulus scheme soon.
Policymakers at the central bank have noted that ultra-low interest rates, paired with the €60 billion per month asset-purchasing programme, have helped stabilise growth and drive price pressures higher in the currency bloc.
However, whenever markets have begun pricing in a stimulus wind down, ECB officials have attempted to quash speculation that the end of ultra loose policy is in sight.
With this in mind, it is possible that Draghi could use this afternoon’s speech to talk down the prospect of a QE taper, which would likely give GBP/EUR a significant boost.
On the other hand, any surprise hints that policy needs to be normalised could give the single currency the impetus to rally versus Sterling.
Pound to US Dollar Exchange Rate Remains Above Key Psychological Support
‘Cable’ fluctuated with little direct influences yesterday but managed to remain above key psychological support.
It appears that traders are keen to protect GBP/USD from any large losses, which suggests Sterling could post additional gains against the US Dollar if sentiment improves. The ‘Greenback’ appears susceptible to selling pressure on concerns that President Donald Trump’s much-vaunted infrastructure spending and tax reform plans may never see the light of day. This leaves us with the possibility that a strong UK retail sales report this morning could kick off a new rally in GBP/USD.
Pound to Canadian Dollar Exchange Rate Loses Half a Cent as Oil Prices Rise
Sterling tumbled by around half a cent against the Canadian Dollar yesterday following a fall in US crude stockpiles that sent the value of Canada’s most lucrative export higher. Oil prices rose, bumping the ‘Loonie’ with them, in response to news of a 4.73 million barrel drawdown in American oil reserves.
The drop was larger than the 3.46 million reduction markets were expecting, which explains why markets moved following the release.
Pound to Australian Dollar Exchange Rate Hits New 3.5-Month Low
The Pound to Australian Dollar exchange rate depreciated by around a cent yesterday to strike a fresh three-and-a-half-month low. The ‘Aussie’ continued to gather momentum following remarks earlier in the week from the Reserve Bank of Australia indicating that interest rates would likely rise from 1.50% to 3.50% when the central bank eventually begins its normalising cycle. The hint of a 200 basis point hiking cycle was enough to significantly increase demand for AUD.
Pound to New Zealand Dollar Drifts Lower by Half a Cent
The Pound to New Zealand Dollar exchange rate softened by around half a cent yesterday. However, we could see Sterling tick higher during today’s session if holders of Sterling are treated to a robust UK retail sales print.
Data Released
GBP Retail Sales (YoY) (JUN)
EUR European Central Bank Rate Decision (JUL 20)
EUR ECB Deposit Facility Rate (JUL 20)
EUR ECB Asset Purchase Target (JUL)
EUR ECB President Mario Draghi Holds Press Conference