Sterling found itself supported by a stronger-than-expected Consumer Price Index figure.
Please find below today’s update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements.
• UK Inflation rises – unexpected boost to the Pound.
• Eurozone economy contracts -0.2% – double-dip recession imminent.
• US Advanced Retail Sales rebound strongly – suggests Fed stimulus may not be forthcoming.
• Negative German ZEW data – could be an uphill struggle for the German economy from here on.
Yesterday Sterling found itself supported by a stronger-than-expected Consumer Price Index figure for July. The annualised headline inflation print came in at 2.6% beating the market consensus of 2.3%, and improving by 0.2% on June’s score of 2.4%. Although the result hampers the Bank of England’s mission to bring inflation down to a controlled level of 2.0%, and could threaten growth in other areas of the economy through constrained consumer spending, it was seen by investors as beneficial to the Pound as it reduces the chance of further Central Bank easing in the immediate future.
Today’s BoE minutes report is expected to reflect a very similar outlook to last week’s Quarterly Inflation Report and for this reason the chances of an interest rate cut are very slim. A return to the Central Bank’s easing cycle is also unlikely given that neither the new Funding for Lending scheme nor the latest round of quantitative easing have had sufficient time to be evaluated as of yet.
Official figures from Markit Economics showed that the Eurozone economy shrank by -0.2% during the second quarter, dragging the 17-nation bloc closer to the ‘Double-dip Recession Club’ that George Osborne and David Cameron have unsuccessfully been trying to flunk over the past few months.
Although German GDP grew by an unexpected 0.3%, and France marginally avoided contraction with a rounded up figure of 0.0%, the overall print was weighed down by poor scores from the periphery: Portugal shrank by a dismal -1.2%, Italy contracted by an anemic -0.7%, and Spanish GDP fell by a worrying -0.4%.
The Euro pulled the Pound to a daily low of 1.2684 in response to the ‘surprisingly-strong-German-data’ and the overall Eurozone figure, Sterling rallied back towards 1.2730 to mark a daily gain of 0.25 cents.
The single currency was also damaged as the German ZEW survey results showed that economic confidence in the country has fallen to a 2-year low in terms of the current situation, and is falling fast in relation to near-term expectations. Many analysts commented that, although the German GDP print purports continued resilience in the German economy, the strong figure belies the nation’s struggle to cope with extensive exposure to the crisis. It seems that we could see the economic downturn in Europe escalate considerably during the next few months as the ‘motherland’ anticipates falling output, which could seriously undermine the strength of the single currency going forward.
The Pound retained a position virtually unchanged against the US Dollar throughout the day yesterday as the strong UK CPI inflation report was neutralised by a better-than-expected rebound in Advanced Retail Sales. Sterling briefly touched a 2-week high of 1.5730 during the morning before Fed stimulus hopes were dealt a blow during the afternoon as US Advanced Retail Sales bounced back, in a fashion that would put Alan Partridge to shame, from -0.7% in June to an impressive 0.8% in July.
Although the data was supportive of the US economy, which would usually damage demand for the US Dollar as a safe haven, the rising Retail Sales figures were perceived by investors to be US Dollar-positive as they were seen to reduce the chances of further monetary easing from the Fed. Subsequently the Pound to US Dollar exchange rate fell back down to levels around the 1.5675 mark.
The main market-moving event for the Pound to Australian Dollar exchange rate came as worldwide risk sentiment was dampened by the sturdy US Advanced Retail Sales figure. By beating analysts’ predictions of a mild rebound from -0.3% to 0.3%, and rebounding to an impressive 0.8%, the US Sales result weakened Fed stimulus hopes and subsequently weakened demand for the ‘Aussie’ Dollar. GBP/AUD appreciated by just over half a cent in response to the release.
New Zealand Dollar
The Pound appreciated by around 1.3 cents against the New Zealand Dollar yesterday as markets proved unaccommodating of riskier assets. The recent slowdown in New Zealand’s regional trade partners of Japan and China, mixed with news that the Eurozone economy contracted in the second quarter proved enough to send Sterling to a fresh fortnightly-high of 1.9498 as investors favoured the Pound for its safe haven qualities.
The Pound fluctuated against the Canadian Dollar somewhat aggressively throughout the morning as markets attempted to make sense of the unravelling narrative that emerged from the numerous ecostat releases.
First Sterling rallied in anticipation of weak German GDP figures, then risk sentiment swung back in favour of the Canadian Dollar as the German print came in strongly. Then investors felt it their duty to congratulate the Pound in its latest stimulus avoidance attempts as the Consumer Price Index result unexpectedly rose…
The shuffling continued until the afternoon when the US Advanced Retail Sales left the ‘Loonie’ having the last laugh – as is so often the case! The strong US figure reflected positively on the vigorous Canadian export industry and for this reason GBP/CAD fell by around 0.4 cents to mark a mild daily gain of around 0.15 cents for the Canadian Dollar.
Data Released Today
09:30 GBP Bank of England Minutes
09:30 GBP Jobless Claims Change (JUL)
09:30 GBP ILO Unemployment Rate (3M) (JUN)
13:30 USD Consumer Price Index (YoY) (JUL)
23:30 NZD Business NZ Performance of Manufacturing Index (JUL)
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