GBP’s run of gains continued and the Pound to Euro, US Dollar exchange rates both surged on Thursday after the UK’s retail sales data smashed forecasts.
The GBP EUR exchange rate hit 1.1621 while the GBP USD exchange rate achieved a high of 1.3165.
However, Sterling fell back on Friday ahead of the release of the UK’s Public Finance data as German Producer Price figures exceeded forecasts.
- UK inflation showed signs of picking up in July – Pound boosted despite concerns over risks to BoE’s 2% inflation target
- Euro trended higher on back of Eurozone ZEW survey – Economic sentiment found to have recovered strongly in wake of Brexit shock
- Fed policymakers talked up possibility of 2016 rate hike – US Dollar demand strengthened as odds of imminent tightening revised higher
- UK retail sales send Sterling surging – GBP gains across the board on impressive sales stats
GBP to EUR, USD Struggling to Hold Retail Sales Gains
The Pound hit its best levels of the week so far against the Euro and US Dollar on Thursday as surging UK retail sales figures helped ease fears that the UK’s decision to Brexit from the European Union would push the UK into recession.
GBP/USD jumped by around a cent while GBP/EUR recorded gains of around 0.7%.
According to the Financial Times: ‘The Office for National Statistics said sales last month were supported by better weather while there was some anecdotal evidence that the sharp slide in the pound after the Brexit vote encouraged tourists from overseas to spend more while on holiday in the UK […] Sales, excluding petrol, were also 5.4 per cent higher by volume than a year earlier in July. This followed a 3.9 per cent annual rise in June, when sales growth cooled significantly from 5.2 per cent in May.’
The Pound’s gains against the Euro were aided by mixed inflation figures for the Eurozone. The nation’s CPI printed at -0.6% on the month rather than -0.5%, although the annual result of 0.2% was double the 0.1% reading projected.
However, by Friday morning the Pound Euro (GBP EUR) exchange rate had fallen back to trending in the region of 1.1588.
The UK’s public borrowing figures had little impact on Sterling, despite coming in worse-than-expected in the wake of the vote to Brexit.
According to The Independent; ‘The figures imply the Government is set to breach the £55.5bn deficit target for 2016-17 outlined by the Office for Budget Responsibility at the time of the March Budget. Economists expect the shock Brexit referendum result on 23 June to slow the economy markedly, which will result in tax revenues falling well short and leaving the Government’s deficit reduction plans adrift.’
Next week the only UK data with the potential to spark much in the way of Pound Euro exchange rate movement is the BBA Loans for House Purchase report and second quarter growth figures.
However, as the growth data pertained to the post-Brexit period, its influence is likely to be limited.
(Previously updated 17/08/2016)
Pound Exchange Rates Fail to Hold onto Earlier Employment Data Gains
Both Pound to Euro (GBP/EUR) and Pound to US Dollar (GBP/USD) exchange rates moved further away from post-Brexit lows following the release of UK jobs data.
Demand for the Pound continued to strengthen on Wednesday morning, with investors encouraged by signs that the UK labour market has remained in robust condition despite Brexit-based uncertainty. As a result the Pound to Euro and US Dollar exchange rates trended higher.
However, with a lot of stock being placed in the UK’s upcoming retail sales figures, the Pound could yet fall back to this week’s lows. Signs of a drop off in consumer spending would be Sterling negative.
Towards the close of Wednesday’s European session the Pound had lost its earlier momentum against the Euro and US Dollar, returning to a downtrend. Investors remain concerned by the outlook of the UK economy, despite the day’s positive data. As a result the GBP EUR exchange rate was trending lower around 1.1549, while the GBP USD pairing was slumped in the region of 1.3006.
Further movement in GBP/EUR, GBP/USD exchange rates can be expected on Thursday following the publication of the UK’s latest retail sales data.
(Previously updated at 15:22 on 17/08/16)
Despite the recent lowering of the odds for a 2016 Federal Reserve rate hike, the US Dollar recovered some of its lost strength during Tuesday’s American session thanks to hawkish comments from Fed policymakers.
Bullish UK Inflation and Employment Results Shore up Pound (GBP) Exchange Rates
A successful Bank of England (BoE) long-term gilt reverse auction helped shore up the Pound (GBP) on Tuesday, boosting confidence in the easing capabilities of the central bank. The appeal of Sterling was also increased by a stronger-than-expected baseline Consumer Price Index for July, despite the corresponding core figure weakening on the year. Annual inflation of 0.6% was received positively by investors, despite rising concerns that inflation will outstrip the BoE’s 2% target early in 2017. Nevertheless markets were encouraged by this major piece of post-Brexit data, allowing GBP exchange rates to trend higher.
Market sentiment was further improved by the latest raft of UK employment data. Wage growth was encouragingly found to have remained robust in the three months to June, indicating that the economy was in stronger form ahead of the EU referendum. More importantly, though, the Claimant Count for July showed an unexpected fall in the number of those on unemployment benefits, counter to investor expectations of a sharp rise. In response the Pound extended gains against rivals, throwing off the drag of Brexit-based concerns for the time being.
ONS statistician David Freeman observed; ‘The labour market continued on a strong trend in the second quarter of 2016, with a new record employment rate. However, little of today’s data cover the period since the result of the EU referendum became known, with only claimant count and vacancies going beyond June- to July for the former and May-July for the latter.’
GBP EUR Exchange Rate Weighed Down by Strong Eurozone Sentiment Survey
The Eurozone ZEW Economic Sentiment Survey for August strongly bettered expectations to rebound from -14.7 to 4.6, suggesting that the currency union has been fast to shrug off the impact of the Brexit shock. As a result the appeal of the Euro (EUR) improved, particularly as June’s Eurozone trade surplus was found to have widened further than anticipated. Altogether this painted a more optimistic picture of the domestic economy, overshadowing recent market concerns over the uneven nature of the currency union’s recovery. This helped prevent the Pound to Euro (GBP EUR) exchange rate from making any particularly bullish gains, although the pairing was nevertheless able to climb away from a fresh three-year low of 1.1472.
Further single currency volatility should be expected on Thursday, with the release of the June Construction Output and finalised July CPI figures for the Eurozone. Additional signs of robustness within the domestic economy would increase demand for the Euro, giving investors less reason to dwell on worries over the Italian banking sector. Also of note will be the account of the latest European Central Bank (ECB) monetary policy meeting, which could boost the GBP EUR exchange rate if policymakers are found to have expressed greater dovishness.
Hawkish Fed Minutes Predicted to Boost US Dollar (USD)
Investors were disappointed by Tuesday’s US inflation data, even though markets had expected to see a weakening in domestic inflationary pressure. July’s CPI was ultimately shown to have fallen from 1.0% to 0.8% on the year, a larger dip than forecast. As a result the odds of the Federal Reserve returning to its monetary tightening cycle before the end of the year were seen to diminish further, with the outlook of the world’s largest economy less bullish than might have been hoped. This fresh softness pushed the Pound to US Dollar (GBP USD) exchange rate higher, with the pairing rallying strongly to a multi-day best of 1.3062.
Even so, it was not long before the US Dollar (USD) began to regain some ground, thanks to commentary from two members of the Federal Open Market Committee (FOMC). Both the New York and Atlanta Fed Presidents indicated the belief that interest rates could rise before the end of the year, encouraging a recovery in the ‘Greenback’. Consequently markets are interested to see the contents of the FOMC meeting minutes for July, which could improve the likelihood of an imminent rate hike. As Sam Lynton-Brown, research analyst at BNP Paribas, noted:
‘While the market had a relatively muted reaction to the July statement, we think the minutes could guide the market to price in a greater chance of a September rate hike. We continue to think this should be priced closer to 60-65% than the current 20% implied by rates markets.’
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trending higher in the region of 1.1576, while the Pound to US Dollar (GBP USD) pairing was trending around 1.3042.