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GBP flat ahead of retail sales data

By Nick Parsons

It has been a much calmer session overnight for the British Pound, which traded in an exceptionally tight range between USD1.3168 and 1.3180 for just over 12 hours.

Against the Aussie Dollar there was the usual 10 minutes of madness when the latest data were released (see below) but even allowing for that spike, the range has been barely half a cent between GBP/AUD1.7323 and 1.7374 and it opens in London right at the midpoint of that band at 1.7344.

Economic data in the UK so far this week have shown the cost of goods and services as measured by the CPI, the number of people in work and the amount they were collectively paid. Today we’ll get to see how all that translates into consumer spending.

Consensus today looks for a rebound of just +0.2% m/m and because there was a big jump in sales in the same month in October 2016, there’s a chance that the annual measure might turn negative for the first time in four years. If that happens, it would be sure to generate some very poor headlines and would like send the GBP lower once more. With the UK Budget scheduled for next Wednesday, there is mounting pressure on the Chancellor to “ease the squeeze” on household and public finances.

Bank of England Governor Mark Carney speaks in Liverpool today and his audience may well ask why he has added to the pain with higher interest rates. His two colleagues on the MPC who voted to leave Bank Rate unchanged look to be on the right side of the economic debate.

It was the turn of the USD to ride the roller-coaster on Wednesday. Its index against a basket of major currencies tumbled from 93.53 at the London opening to a low just ahead of the latest economic numbers in the US of just 93.12. Within a couple of hours it had regained all its losses and closed in New York exactly unchanged on the day.

Overnight in Asia the index has traded essentially sideways between 93.50 and 93.63. Taking the economic data as a whole – retail sales, CPI and real hourly earnings – they were broadly in line with consensus expectations.

Retail sales were up 0.2% m/m against forecasts of no change, the ex-autos number was a tenth weaker at +0.1% m/m but the so-called ‘control’ group’ which feeds into GDP was on the button at +0.3%. Headline CPI met expectations at 2.0% y/y whilst the core ex-food and energy was a tenth higher at 1.8%.

The CME’s online calculator at the beginning of the Northern Hemisphere day on Wednesday showed the probability of a December Fed hike at 96.7%. By the close of business, it stood at…. 96.7%. This afternoon brings fresh data on manufacturing and industrial production.

If US stock markets can build on the positive momentum which saw them close well off their lows, and with S+P futures indicated up around 5 points, then the USD, too, may find some support around current levels.


The Single European Currency may have been glued for a very long time recently on a USD 1.16 ‘big figure’ but it didn’t spend very long at all on 1.17; taking barely 12 hours to trade up to 1.18 and on to a best level of 1.1858 just before yesterday’s US economic numbers were released.

The British Pound was simply unable to keep pace and the GBP/EUR rate briefly printed below 1.11 for the first time in almost 3 weeks. As the USD then found some support, so the EUR went into reverse. EUR/USD slipped to a low of 1.1770 whilst GBP/EUR gained almost a cent to a high late last night of 1.1191.

The euro opens this morning in London at GBP/EUR1.1172 and USD1.1795. The day ahead in Europe brings October’s final CPI reading and it would be a big surprise if it were much changed from the provisional estimate of 1.4% y/y. We can confidently predict that factory orders in Slovakia will have little market impact.

ECB Council member Villeroy de Gallau speaks in Amsterdam at lunchtime whilst his colleague Constancio is topping up his air-miles and speaks later in the day in Ottawa. We’d expect any pullback in the EUR/USD exchange rate to be fairly limited, with the Asian low of 1.1770 the first obvious level of technical support.

The Aussie Dollar was hit hard on Wednesday, tumbling from a local high of 0.7630 all the way down to 0.7575; its weakest point since early July. If you were awake last night between 2-2.30am you’d have seen the pair very briefly back on a US 76 cents ‘big figure’ but it opens in London this morning around 0.7690.

GBP/AUD traded at 1.7336 and 1.7374 immediately after the Australian employment numbers were released and opens today around 1.7357. The volatility around the data was caused by apparently conflicting headlines. Consensus had looked for an increase in employment around +18k in October but the outturn was a much softer 3.7k rise. Full-time jobs rose 24,300 whilst part-time jobs fell 20,700.

But, even with softer employment numbers, the unemployment rate fell a tenth from 5.5% to 5.4%; helped in part by a small drop in the participation rate to 65.1%. Just as we’ve seen elsewhere in the world – and most notably in the US and UK – falling unemployment in Australia is not leading to higher wages. Australians have largely been shielded from the declines in real wages suffered in the UK and with no cheap immigrant labour, total pay is extremely high by international standards.

But, with no growth in real earnings and a huge burden of mortgage debt to be serviced, worries about slower household consumption should continue to weigh on the AUD from here. The days of an 80 cent AUD/USD rate are not coming back.

We’ve been warning over the last couple of days that the Canadian Dollar’s recent good run could be coming to an end and Wednesday was indeed a poor day for the currency.

USD/CAD rose around 70 pips to a high of 1.2787 whilst GBP/CAD touched a high of 1.6839. The CAD was hit by a combination of lower energy prices and a generally poor set of domestic economic data. House prices in Canada fell another 1.0% m/m in October after a -0.8% decline in September which took the annual rate of growth down from 11.4% to 10.0%; a number which we can be virtually certain will fall much more sharply over the next 6-9 months.

As prices fell, so too did the pace of transactions with existing home sales up just 0.9% m/m in October after a 2.1% m/m gain in September. In the commodities complex which has recently been one of the big props for the currency, NYMEX crude ended the day unchanged at $55.45 having at one point fallen as low as $55.16. It trades at $55.36 this morning with Natural Gas unchanged at $3.08. USD/CAD opens in London this morning around 1.2781 with GBP/CAD at 1.6795.

Price action in the New Zealand Dollar has been very poor over the last 18 hours. From a high of USD0.6918 just before the latest US economic numbers on Wednesday, it has fallen steadily and almost without interruption to 0.6850; just above Tuesday’s intra-day low of 0.6847.

GBP/NZD has been as high as 1.9219; its best level in two weeks whilst the AUD/NZD cross is around 30 pips higher at 1.1070. Our economic tongue has been firmly in cheek this week as we’ve spoken about the upcoming NZ concrete production numbers and here’s the chance to report on them: The delivery of ready-mixed concrete in the 3 months to September fell slightly from the June quarter, and is barely above the level it was a year ago.

The main centres of population are now showing year-on-year declines; Auckland is down -4.2%, Wellington is down -12.5% and Christchurch down -14.6%. Meantime, separate figures showed the ANZRoy Morgan Consumer Confidence Index eased from 126.3 to 123.7 in November; its lowest in 7 months. Looking ahead, Friday brings PMI and PPI data but with no RBNZ meeting now until February 8th, it’s difficult for international investors to be particularly enthusiastic one way or another about the NZD.