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Following a week of the highest-level economic data for the UK the pound has remained largely where it’s been all year against the euro and gained half a cent on the US dollar.
This data round was completed this morning with Retail Sales, which sank by 1.3% in April. However the drop was mainly due to lower fuel sales as petrol prices soared and underlying this the drop was just 0.4%. More optimistically we also had the GfK Consumer Confidence Index out overnight and this recovered a little to -23, suggesting that households are a little less pessimistic.
It looks like they have every reason to be, as the price of Brent Crude oil remained at around $88, still well above where it was pre-Iran war but nowhere near recent highs approaching $120.
Even so, the Bank of England warned yesterday that they still see oil at $100 plus per barrel for most of this year, which will quite possibly cause a recession. Business was certainly following this more wary approach, and yesterday’s Purchasing Managers Index (PMI – a global survey of business mood) showed a sharp drop for the UK’s all-important service sector, dropping to 47.9 when 51.7 was predicted. Anything over 50 denotes positivity and below is negative, and there was a mixed picture across other areas, with European manufacturing positive but services negative.
The British prime minister Sir Keir Starmer made an uncharacteristic unscheduled stop with a group of reporters outside Number 10 to laud the latest immigration figures to the UK, which have dropped significantly, alongside the improving economic growth and falling inflation.
There was also good news from the Middle East, with US Secretary of State Marco Rubio saying that there were positive signs of a peace deal with Iran, as tankers continued to move through the Straits of Hormuz. However, in the meantime Iran is claiming military control over a larger area of the Straits, including into the UAE’s territorial waters.
GBP: Attention turns to June risks
So, after a few ups and downs in recent weeks GBP/EUR has returned to where it’s been since last summer. It looks like a quiet period approaching, with UK politics in stasis until the Makerfield by-election on 18 June. It may not have escaped your attention that that’s also the date of the next BoE interest rate decision. The pound tends to have a positive April and May and then weaken through the summer – not always and not for any particularly strong reason – but certainly it may be worth your while talking to your account manager about proactively hedging against that eventuality.GBP/USD: the past year
EUR: Interest rate hike expected from ECB
The European Central Bank (ECB) will be making its own interest rate decision a week before the BoE and this looks like being a rate hike to 0.25%. This should be supportive of the euro, but in fact it has weakened over the past week, and month. Like the UK’s this morning’s GfK Consumer Confidence reading was a little improved for Germany, but fairly weakly, and we’ll get a business mood report at 9am. Next week will be all about inflation numbers.GBP/EUR: the past year
USD: Dollar weakens on quieter Middle East
Easing worries about the Middle East have helped to drive the dollar down this week, but it’s all been a bit anaemic against its main rivals. The Middle East crisis is far from over – as Trump himself pointed out – but for now the analysts will be working out how the past three months have impacted the US economy. PMI readings remained strong this week, but next week we’ve got quarterly GDP coming out.USD/GBP: the past year
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