Pound Struggles as the UK Economy Continues to Show Signs of Slowing Down

Pound (GBP) Dented by Drop in Consumer Credit 

The Pound (GBP) fluctuated yesterday, trending lower against most major rivals overall, as worries about the UK’s economic recovery persist.

Consumer credit fell by £0.042bn in July, rather than rising by £0.441bn as was expected. This suggests that the growing infection rate has dented consumer spending – a key driver of the UK’s economic recovery. 

Turning to today, the UK’s final manufacturing PMI is expected to confirm a slight slowdown in factory activity. Any surprise results could prompt GBP movement. 

Euro (EUR) Subdued despite Soaring Inflation 

The Euro (EUR) was somewhat subdued yesterday, despite the latest CPI reading for the Eurozone showing that inflation soared to a ten-year high of 3%.

Gains in the single currency were capped by the European Central Bank’s (ECB) ongoing dovish stance as well as the fact that Germany’s temporary VAT cut last year will have pushed inflation higher. 

The single currency is facing headwinds this morning after German retail sales slumped by 5.1% in July, much worse than the expected 0.9% contraction. Unless upwardly revised, this morning’s finalised PMIs are unlikely to bolster the Euro. 

US Dollar (USD) Gains on Rising Treasury Yields 

The US Dollar (USD) initially slipped yesterday but managed to recoup some losses in the afternoon, despite US consumer confidence falling to a six-month low. 

The upside came amid a sharp rise in US Treasury yields, with the ten-year yield breaking above the 1.30% mark. 

USD investors will be eagerly awaiting the ADP employment change figures this afternoon, as the expected positive result could prompt the Federal Reserve to give more details on their tapering timeline. 

Canadian Dollar (CAD) Hit by Contraction in GDP Growth

The Canadian Dollar (CAD) slipped yesterday after Canada’s GDP growth rate unexpectedly shrank by o.3% in the second quarter of this year. 

Turning to today, Canada’s manufacturing PMI is expected to show a fall in factory activity last month. If so, this could put further downward pressure on CAD exchange rates. 

Australian Dollar (AUD) Climbs as GDP Beats Forecasts 

The Australian Dollar (AUD) jumped overnight after Australian GDP growth beat expectations for the second quarter of this year, printing 0.2% higher than the forecast figure to come in at 0.7%. 

New Zealand Dollar (NZD) Firms amid Risk-On Mood 

The New Zealand Dollar (NZD) made some modest gains in overnight trade, buoyed by the strength of AUD and a risk-on market mood.