020 7898 0500
Retail sales declined in the UK in July
The pound to US dollar rate is currently at its best since early May, 2% up on last month and 10% above the average of the past five years. No such success against the euro, where the air is slowly coming out of July’s strong rise for the pound.
Will that slippage continue? We’re just coming out of a busy period for data that showed a mixed picture, with better GDP and higher earnings, but also higher inflation and unemployment. UK retail sales for July landed this morning and fell by 0.5%, as expected. It’s a number that matters more than usual right now as the Bank of England watches every signal about whether British households are holding up under the pressure of higher energy costs. They will have taken heart from a survey out this morning from GfK, which found consumer confidence at its best in the UK for two years. Householders said they were more likely to make a big purchase in the coming weeks and were more optimistic about the state of the economy.
But what of business? The flash purchasing managers’ index (PMI) surveys for the UK, eurozone and United States follow later today, offering the first proper snapshot of business conditions in August. None of it, though, is likely to move markets as much as what happens next Friday morning in Wyoming.
That is when Kevin Warsh takes the stage at Jackson Hole for his first major speech as Federal Reserve chair. He has said he wants to raise “big questions” about the long-term shape of monetary policy rather than offer guidance on the next meeting. This is the sort of thing that keeps currency traders on edge. After lower US inflation and a weak July jobs report, the odds of a Fed rate hike in September have drifted back below 40%.
Oil continues to dominate the discourse. Brent crude prices has gained more than 5% over the past week, climbing back above $90, as talks to reopen the Strait of Hormuz stalled and the International Energy Agency warned of the widest global supply shortfall in five years. That is the context for this morning’s PMI readings.
In the wider economy, we have just heard that rising UK tax receipts have cut government borrowing significantly.
GBP: Pound waits for businesses to have their say
Sterling added to its recent gains over the US dollar yesterday, although it was unable to keep pace with a stronger euro. That leaves the pound supported by recent UK growth and inflation figures, but still searching for a clear domestic reason to push much further. This morning’s business surveys could provide one. July brought a welcome return to growth for UK companies, but firms were still cutting jobs and facing elevated costs. With oil having risen again since then, the balance between activity and prices will matter as much as the headline number.GBP/USD: the past year
EUR: Markets look to business surveys
The euro gained again on the safe-haven currencies yesterday (the dollar, yen and Swiss franc), taking EUR/USD to a whopping 2.5% stronger than last month. It remains balanced against the pound. The inflation reading edging up to 2.9% in July gives the ECB's hawks fresh ammunition ahead of the September meeting and an interest rate hike is no longer the outside bet it seemed a few weeks ago. How are eurozone businesses coping with the oil worries and a scorching European summer? Look out for their PMI readings today.GBP/EUR: the past year
USD: Dollar in retreat while waiting for Warsh
The US dollar weakened yesterday, against the euro and pound. Markets are pricing a 62% chance that the Fed holds interest rates steady in September, after July inflation came in on target and the jobs market weakened. The dollar has pulled back from its July highs as a result. The Jackson Hole central bankers’ symposium on 28 August is the real pivot point. Fed Chair Kevin Warsh has given no forward guidance, which means that his speech could shift September rate expectations dramatically in either direction, with an impact on global currencies.USD/GBP: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 3918 7255 or your Private Client account manager on 020 7898 0541.
