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Uncertain times for the pound

15th June 2017 Market Update

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🇬🇧 GBP – The pound edged lower yesterday after a less than impressive set of unemployment figures gave the pound little reason to trade any higher against either of its major crosses. Average earnings fell in real terms by 0.6% in the three months to April, compared with the same period last year.
Unemployment fell by 50,000 to 1.53 million in the three months to April according to Office for National Statistics, the ONS also stated the number of people in work was the joint highest since records began in 1971 at 74.8%.

The pound seems to be at a cross roads at present with the UK government seeking to tie up a deal with the DUP as quickly as possible with Brexit talks seemly being put on hold. From the UK today have a very busy day with retail sales being released at 9:30am, the year on year figure is expected to come in much lower at 1.7% against 4.0% whilst the month on month number is also looking to come in lower at -0.8% versus 2.3%, possible losses in the pound could be seen in early morning London trade.

Following on from the retail sales numbers we have “Super Thursday” which contains the Bank of England interest rate decision at 12pm followed on by the minutes and quarterly inflation report, any insight into the Banks forward guidance on monetary policy could see further moves lower in an already fragile pound.

🇪🇺 EUR – From the Eurozone on Tuesday the single currency edged higher versus the greenback, despite a lack of European data. The move higher was purely down to a worse than expected set of US inflation numbers which in turn saw a flight into the greenback as a risk appetite move. The only piece of Eurozone data came in the form of German CPI numbers which to be fair came and went without many people noticing.

Across the Eurozone today we will see a raft of data from across Italy and France in the way of the inflation numbers these numbers are not expected t to set the world light, so these numbers shouldn’t create too much movement in the single currency. We will also see The International Monetary Fund, Eurozone Finance Ministers and Greek officials meet today in Luxembourg to negotiate financing and further debt restructuring for Greece.

🇺🇸 USD – From across the Atlantic the greenback traded lower in mid-morning trade against both the British pound and single currency after worse than expected set of inflation numbers surprised many coming in at 1.9% on the year against a 2.2% reading whilst the month fared no better coming in at -0.1% versus 0.2%.

Following on from the inflation numbers were the retail sales figures which also came in much lower than expected at -0.3%, versus 0.4% on the month. Though it seems that no figure for the year was released. The final piece of data came in the form of the FOMC interest rate decision. The
central bank raised their key benchmark interest rate for the second time this year, the bank voted to raise its key target to a range of 1% 1.25%. That is the highest level since 2008 when policy makers cut rates to encourage borrowing and spending after the financial crisis. The bank also said it cut would begin cutting its bond holding and other securities this year. The bank cited continued US economic growth and job market strength as a reason for raising its interest rate. The greenback made only modest gains against its major trading partners moments after the announcement was made and levelled out towards the end of the trading session.

From the United States today we have data in the form of the initial jobless claims these are expected to show a small decline, but unlikely to impact the markets as these figures are weekly.

 

Key Announcements

🇬🇧 GBP
09.30am – Retail sales MoM -0.8% – 2.3%.
09.30am – Retail sales YoY 1.7% – 4.0%.
12.00pm – Bank of England interest rate decision, minutes, quarterly report, Mark Carney press conference.

🇺🇸 USD
11.30am – U.S Initial jobless claims 242,000 – 245,000.
14.15pm – U.S industrial production MoM 0.2% -1.0%.

 

Our View: The pound as stated in my sterling notes “seems” to be at a cross roads with the UK government in talks to tie up a deal with the DUP and Brexit talks being delayed until some sort of a government is formed. The pound would find itself moving purely on political data over the coming weeks.
 
Possible moves towards to the level side could be expected with more uncertainty expected over the coming weeks.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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