BRC Sales Figures Strong, Eurozone Data Weak
Pound Sterling (GBP) has been strengthened against the Euro (EUR) and US Dollar (USD) thanks to a strong performance by Like-for-Like Sales figures from the British Retail Consortium (BRC), which increased 2.6% in January, vastly outpacing the forecast 0.3% rise.
Meanwhile, the Euro has been weakened by poor data from Germany. Both the German Trade Balance and Current Account figures have failed to hit their forecasts, while industrial production fell -2.2% year-on-year (YoY).
Yet in spite of the data Pound Sterling has lost its lead on the Euro, as today’s positive figures fail to undo the previous two month’s poor numbers after November’s deficit was revised upward from -£3.1 billion to -£4 billion.
Pound (GBP) Softened as UK Business Confidence Hits Three-Year Low
According to the latest BDO Business Trends Survey, optimism among the UK’s small enterprises is at a 36-month low. The confidence index has dropped to 100.0, below which shows a negative sentiment towards future growth. According to the survey, the upcoming EU referendum and worsening global economic conditions are weighing heavily on the minds of small business owners. The report is the second in the space of a few days to suggest UK businesses are becoming more dovish, with the ICAEW/Grant Thornton UK Business Confidence Monitor dropping to 11.4 from 15.6.
The EU referendum continues to weigh heavily on investor sentiment today, with Pound Sterling (GBP) recording a mixed performance. The Euro (EUR) is advancing against Sterling despite another slump in investor confidence, while GBP/USD is currently holding opening levels.
GBP/EUR Soft Despite Eurozone Confidence Hitting Ten-Month Low
The Pound Sterling to Euro (GBP/EUR) is still soft on the uncertainty surrounding the ‘Brexit’ referendum after it emerged last week that the ‘Out’ campaign has a 9 point lead on the ‘In’ campaign. However, in positive news for the ‘Stay’ camp, Home Secretary Theresa May has announced she will join the campaign to remain part of the Union. This has come as a blow to EU-dissenters, who had set their sights on May leading the ‘Leave’ campaign.
Investor confidence in the Eurozone is at its lowest level since April 2015, according to the latest Sentix survey. The Overall Index dropped from 9.6 points to 6.0. While sentiment towards the current situation decreased only -2.5 points, expectations fell from 6.3 to just 1.5.
The figures for Germany, the Eurozone’s largest economy and therefore a key driver of growth, have slumped as well, hitting their lowest levels since the end of 2014. The Overall Index fell from 18.1 to 14.5, assessment of the current situation from 35.6 to 33.0 and expectations from 1.8 to -2.6.
On a global scale, the aggregate index hit its lowest level since August 2012, sliding from -1.6 to -3.6. In positive news, fears over the Chinese economy haven’t worsened since the last survey, although according to Sentix the rise in the Asia excluding Japan index from -7.6 to -4.3 is a technical correction after an overreaction to January’s bad news.
Despite the poor results, the Euro is trending positively against the majors, with the GBP/EUR exchange rate slipping -0.1%.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Holds Opening Levels: Investors Looking to Mid-Week Yellen Speech
Investors are already preoccupied with two public appearances from Federal Reserve Chair Janet Yellen later on this week and hoping for more direction on the future path of interest rates. Friday’s US Non-Farm Payrolls release confused matters slightly, with overall job creation printing below-forecast while unemployment dropped to an 8-year low and hourly wage growth increased by 0.5%.
Prior to the release, markets had priced in zero chances of another rate hike happening in 2016. However, with the labour market remaining strong (the downward revision in December’s figures was countered by an almost identical upward revision in November’s figures) and strong wage growth suggesting inflation will rise, conditions are becoming more supportive of another rate hike.
Yellen is due to appear before the House Financial Services Committee on Wednesday and before the Senate Banking Committee on Thursday.
Current GBP, EUR, USD Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading around 1.2954, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7718.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4479, with the US Dollar to Pound Sterling (USD/GBP) exchange rate trading around 0.6906.