Sterling steadies as markets anticipate UK retail sales today

17th August 2017 Market Update

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?? GBP - Better than expected employment figures helped to drag the pound up from its 10 month lows against the euro yesterday morning. Improving Average Earnings closed the gap on inflation that remained flat on Tuesday, helping to ease the concern of a problematic household income squeeze. A surprise drop in unemployment to the best level since 1975 helped the pound to gain precious ground against the US dollar briefly in the morning.

Today may see the good news run out for Sterling however, as Retail Sales figures are expected to be poor. A disappointing publish could set the tone for Sterling to come under further pressure heading towards the weekend.

?? EUR - The euro charge stalled on Wednesday, as reports circulated that Mario Draghi, head of the ECB, would not be indicating a change in interest rate policy at the Jackson Hole symposium. Analysts have been expecting an interest rate rise or reduction in QE will be announced by the ECB in the near future. The Euro recovered against the US Dollar but remained weaker against the Pound.

Rocketing growth rates in Central Europe sparked by demand from their western neighbours and fiscal expansion, shows again positives for the Eurozone. Romania in particular experienced the highest growth rates in the EU for the second quarter of 2017, reaching 5.7% year on year. This could be seen to show signs that the recently joined Eastern European nations have seen major benefits from joining the trade bloc.

The Eurozone’s inflation readings will be released this morning and are anticipated to remain in line with the previous result. If the figures beat these expectations, the euro will likely be on the front foot once again. ECB minutes are also released but will be unlikely to provide any new guidance.

?? USD - The US dollar has held the 3 week high it reached on Tuesday after a lack of economic data yesterday and looks set to have its second best week of 2017. The North Korea situation seems to be cooling which has helped the dollar to find a sure footing again. The FOMC minutes were released at 19:00 last night, showing that the Fed were split on the impact of persistently low inflation but provided no indication of the timing of the next interest rate rise.

The Philly Fed Manufacturing Survey will be in focus today which is expected to dip slightly. Initial and Continuing Jobless Claims results will be largely overlooked and so the US dollar may be at the mercy of external movements.



Key Announcements

?? 09.30am – Retail Sales (YoY). Expected reading of 1.4%, with a previous outcome of 2.9%.
?? 10.00am – Consumer Price Index.1.3% is both the previous and expected figure so it’s due to remain flat.
?? 13.30pm – Philadelphia Fed Manufacturing. Survey expected to come in at 18.5, the previous reading was 19.5.


Our View: Sterling had a brief respite yesterday but could be back under pressure with Retail Sales figures today and going forward in the next few weeks. Markets are obsessed by the likelihood of interest rate increases in the major economies; a club which the Bank of England does not appear to be part of.


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