As debt levels dominated the US news, and the resultant expectations of continued interest rate hikes from the Federal Reserve, EUR/USD, the most traded currency pair in the world, hit fresh 1-year low. The ongoing crisis in Turkey hasn’t helped the global outlook either, and as a result investors continue to favour safe haven assets such as the US dollar over ‘riskier’ currencies.
In the UK, mixed UK employment data hasn’t helped an already vulnerable sterling. Yesterday’s release revealed a surprise reduction in the unemployment rate, but a slowdown in wage growth counteracted any positive market confidence.
Overall, the market remains nervy and unsettled by global and political sentiment and rhetoric. Today see’s what would normally be considered important market data, including inflationary data from the UK and US retail sales. However, as the trend has been over much of this year, will the market actually pay any notice of this or instead continue its focus on Brexit, Trump, Turkey and an ongoing see-saw in political rhetoric?
The only certainty a business in the UK can have during these uncertain times is to remain focused on its budgets, profit margins, and ensuring any currency swings do not impact these key metrics.
GBP: UK Labour market data remains mixed
The UK’s unemployment rate somewhat surprised investors yesterday morning, coming in at a better than expected 4% from an expectation of 4.2%. This was the lowest recorded level since 1975. However, any confidence in this figure was somewhat subdued by reports of a slowdown in the pace of wage growth. June’s wage growth reading including bonuses slowed from 2.5% to 2.4%, going against expectations for no change or even a rise.
There appears to be general doom and gloom around the pound after increasing risks of a ‘no deal’ were recently highlighted by comments from Trade Secretary Liam Fox and Bank of England Governor Mark Carney, while Prime Minister May is reportedly ramping up preparations for a ‘no deal’ scenario over coming weeks. However, Lloyds bank have argued that the markets might be a little too pessimistic on sterling’s prospects going forward. Although there is only limited time for negotiations before the March 2019 deadline, and the situation remains fluid as political discussions intensify, Lloyds bank is confident the UK government will conclude a withdrawal agreement by March 2019.
The above only highlights the heightened uncertainty around the Brexit deal and the polarising views of various banks and specialists. The only thing we can safely assume is that there will be significant moves on sterling in the coming months as the situation becomes clearer. Therefore, the risks that businesses exposed to foreign cashflows face may also be amplified over the coming period.
EUR: the euro continues to struggle on Turkey fears
The euro remained depressed yesterday after mixed data from the European Union. In the morning, Germany released the second reading of its second quarter’s GDP. The economy grew at an annual rate of 2.3%, which was lower than the expected 2.5%. On the other hand, the EU’s statistics office revised the GDP numbers to reflect a growth of 0.4% in the second quarter. The decline of the euro was partly because of the deteriorating industrial production which rose by 2.5%, but the ongoing contagion from the situation from Turkey hasn’t helped matters. EUR/USD, the most traded currency pair in the world, hit fresh 1-year low on the back of this.
USD: the dollar remains strong due to safe-haven flows
The US dollar was stronger against other currencies yesterday on ongoing Turkey concerns and debt levels from the US providing further support that the US will continue increasing its interest rates.
Retail sales figures will be watched closely today for further support on the interest rate hike argument, but focus will likely be on political events surrounding the Turkey situation and Trump’s next move. Will there be an easing in the situation?
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