Currency Note

All quiet on the economic data front

By Christopher Nye August 7th, 2017

economic data

Last week was an extremely busy one for economic data and we saw some significant swings. The euro again made consistent gains against sterling and the US dollar throughout the week, while sterling dropped from an 11-month high against the dollar following ‘Super Thursday’. The Bank of England confirmed interest rates would be held at 0.25% and growth forecasts were revised down.

Given the dollar has been struggling since the start of the year, last Friday’s data gave the greenback some much-needed support. US employment rate exceeded expectations and July’s non-farm payrolls beat forecast too. This saw the dollar surge and it clawed back almost all of last week’s losses against the euro

This week is a little quiet on the economic data front, but some respite is welcome given last week’s heady schedule. However, that will free up some time for you to have a look through our latest quarterly currency forecasts which are now available to download. We’ve revamped them this quarter and have amalgamated them into one complete document. Do let us know what you think!

GBP: can a vulnerable sterling recover from last week?

Sterling ended last week on the back foot after the BoE voted 6-2 to hold interest rates at the ‘Super Thursday’ meeting. This represented a step back away from a possible rate rise and confidence in sterling slipped. Following this, Governor Mark Carney warned that uncertainty over Brexit is already weighing on the economy and cut growth forecast down to 1.7% from its previous forecast of 1.9% made in May.

In addition, employment data from the US was positive, which ended up compounding sterling’s woes. The big question mark will be on whether this trend will continue into this week. With uncertainty playing an increasingly bigger role in sterling fluctuations the currency will remain vulnerable.

It is a relatively quiet week ahead, with the midsummer lull seemingly underway. The main UK focus will be on June figures for both the trade balance, forecast at a deficit of -£3.6 billion, and manufacturing production (0.5% growth) which are due on Thursday. We also have the release of the BRC retail sales monitor on Tuesday, which is an early guide to July retail sales. This will be followed by the RICS housing survey on Thursday.

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EUR: single currency gives up gains in one fell swoop

After four consecutive days gains, the EUR/USD pairing gave up almost all of its positive momentum on Friday after the US employment data posted better-than-expected figures. Ultimately, this increased the possibility of an interest rate hike from the US later this year.

In the meantime, economic data remained positive as Germany’s factory orders grew in June, exceeding expectations. In addition, Italian retail sales volumes grew by 0.8% month-on-month which was also above forecast.

It is a quieter week ahead with mainly second tier data set to hit the wires. Throughout the week we have the regional industrial production numbers from Germany, Italy and France. These are largely discounted as the market is more interested in the net figure for the region. Finally, we have the German and French inflation numbers which will give the market an early indication of how the eurozone is fairing.

USD: Friday proves to be a pretty good one for the greenback

On Friday, employment data helped provide a huge, much-needed boost for the dollar. It recovered almost all its losses against the euro which it had made throughout last week. The unemployment rate dropped to 4.3% and average hourly earnings came in above expectations, with a 2.5% increase since this time last year. With July’s non-farm payrolls in at 209,000 against an expected 183,000, we could be set for the biggest one-day percentage gain since December 2016.

Looking to the week ahead, the main data piece is July’s CPI data. Inflation has slowed down in recent months to 1.6% in June, but forecasts suggest we might see a slight increase to 1.7% for the month of July. Should inflation come in better than expected, we could see the dollar strengthen and the GBP/USD pairing could fall below the psychological 1.30 mark.

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