UK Retail sales provide temporary respite for the pound
Daily Currency Update
The British Retail Consortium (BRC) Like-For-Like Retail Sales jumped 4.1% year on year in November versus 1.2% prior which looked on the surface like positive news for the pound. However, Reuters commented that, “British consumer spending ticked up last month at a rate that greatly lagged behind inflation, according to surveys this morning that underscored the pressure on household budgets ahead of the Christmas holidays.” We also saw UK’s November month S&P Global Composite PMI eased to 48.2 versus 48.3 initial forecasts whereas the S&P Global Services PMI confirmed the 48.8 flash estimates. With better retail sales, there could be further pressure on inflation, which would put the Bank of England in a difficult place.
Expectation from the market the moment is that the BoE may have to look to cut interest rates again in 2023 or 2024, to ease off pressure on UK households and also help the ailing UK housing market. The pound remains in a vulnerable position, as such speculation may damage the currency. GBPUSD has also lost some of the gains it made last week.
Yesterday, we saw better than expected US data create strength in the dollar. The ISM Services PMI data improved to 56.5 in November compared to 54.5 in October, boosting the dollar leaving EUR/USD to end the day trading below 1.05 handle and cable below 1.22.
Analysts are now saying that positive US Nonfarm Payrolls from Friday last week and ISM Services PMI data have locked in a higher interest rate peak by the Federal Reserve. The US central bank has already promised for a slowdown in the interest rate hikes, but a higher interest rate peak cannot be ruled out as the current inflation rate is far from the target rate of 2%. To support this, Chicago Fed President Charles Evans supported this statement on Friday. This could support the US dollar as we head into 2023.
As of this morning, people in Beijing are allowed to enter supermarkets, offices and airports without having to show negative COV tests. Today and tomorrow we will hear more announcements from China around plans to ease COVID restrictions, which may help with short term risk appetite and may hinder the US Dollar in the next few days.
Germany’s S&P Global Composite PMI declined to 46.3 from 46.4 previous forecasts while the Services PMI dropped to 46.1 versus 46.4 initial forecasts. Germany October industrial orders came in better than expected, up +0.8% vs +0.2% m/m expected, however the Euro doesn't seem to have benefitted. Instead, all eyes are on next week's central bank announcements, where further clues about the path the banks will take to stem inflation will be revealed. We can expect the markets to be volatile next week on the back of this.
- GBP/USD: 1.2180 - 1.2265 ▼
- GBP/EUR: 1.1520 - 1.1635 ▼
- GBP/AUD: 1.7930 - 1.8225 ▼
- EUR/USD: 1.0445 - 1.0535 ▼