Daily Currency Update

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

Retail figures drag on sterling.

By Hamish Muress

The torrid week for sterling continues. Having flirted with 1.33 against the USD on Monday morning yesterday’s disappointing retail sales figures saw it bounce off mid 1.29 instead. All in all the pound has lost nearly 2.5% of its value against the USD whilst it has also finally broken out of its narrow trading range against the Euro.

World Cup spending on alcohol and BBQ food couldn’t offset the drop in spending elsewhere and once again the headline figures has contracted for a third time this year as retailers flocked away from traditional storefronts with the good weather tempting people outside. Any gains that sterling made against the Euro in March and April have slowly eroded with GBP/EUR hitting 19 week lows. Similarly GBP/USD has hit fresh 10 month lows.

What does this mean moving forward, and is there any reprieve for the pound? Well, with a Bank of England interest rate decision just around the corner (August 2nd) the market was pricing in around an 83% chance of a hike at the start of the week but this could be thrown up in the air. The only hope for sterling bulls and Bank of England interest rate hawks is that private consumption only plays a small part in the UK’s GDP figures and it has always been a volatile figure to forecast.

President Trump threw in his two cents yesterday about the Federal Reserve and in particular its recent interest rates rise. If we are fair it was more of a criticism rather than an opinion and Donald Trump also broke away from White House tradition by commenting on the Fed, “I’m not thrilled, because we go up and every time you go up they want to raise rates again…I am not happy about it. But at the same time I’m letting them do what they feel is best”. Rewinding the clock to the start of the year, Trump overlooked previous Chair of the Federal Reserve Janet Yellen and replaced her with his choice Jerome Powell in a move that was seen by the market as a continuation of the current interest rate path. Trump’s annoyance stems from the issue that Fed policy and therefore dollar strength directly impacts his trade policy. Whilst the President can easily impose tariffs to correct the trade deficit as he is entitled to do it is much more difficult for him to influence the dollar performance and its continued surge. There is a glimmer of hope on the horizon for Trump however as the market expects the Fed to stop raising rates once they hit 2.50-2.75% (they are currently 1.75-2.0%) and historically the time between the last hike and the first cut has only been 6-9 months. 2020 could be the first cut therefore.

It was a tale of two stories yesterday for the Euro as it touched 19 week highs against the pound whilst EUR/USD hit one month lows off the back of USD strength before Trump’s comments. It’s been a quiet week for the Euro with little for the market to trade on but next week promises to be more exciting with a raft of manufacturing PMIs and an ECB press conference.

Off the excitement of the latest job figures, where an extra 50.9k jobs were added to the Australian economy the Aussie dollar has come back down to earth with. With copper prices falling another 1.5% this is confirmation that the growth concerns out of China are justified. The plummeting value of the Chinese Yuan is also not helping the Aussie as it hit fresh one year lows against the dollar of 6.812.

Its Canadian inflation day today with the market forecasting a 0.1% pickup in numbers. As mentioned previously though, these inflation figures have missed expectations twice in the last three months and with not a lot of room to play with the numbers could be shocking.

The New Zealand dollar gained against both the USD dollar and pound yesterday but it was very much a case of sterling weakness and market reaction to Trump’s comments. It’s a quiet end to the week for the kiwi but next Tuesday sees their latest trade balance figures released. On that note there is also a G20 summit in Buenos Aires this weekend and you can bet that global trade tensions is the main topic of conversation.