Negative UK Retail Sales Keeps GBP Under Pressure

Tom Tong21/Dec/2012Currency Updates

GBP

November’s retails sales figures released yesterday from the Office for National Statistics were flat for the month, increasing the chance that the broader economy will contract in the fourth quarter of 2012. Retails sales volumes were stagnant on the month, resulting in an annual rise of just 09% – well below economist’s forecasts for both annual and monthly growth. Peter Dixon, UK economist at Commerzbank commented “Consumers are still keeping their powder dry and fourth-quarter activity as a whole is going to be fairly weak. A negative (GDP) figure can’t be ruled out.”

There was further negative news this morning, with the GfK consumer confidence index falling sharply in December – the headline number dropping to -29 for the month, down from November’s 18-month high of -22. Nick Moon, GfK’s managing director of social research said “The index is now only one point higher than it was in October 2012, indicating that consumer sentiment is still fragile despite the fact Christmas is less than a week away.”

This morning sees the release of the 3rd quarter UK current account balance – with the forecast to see a reduction from the 2nd quarter record deficit of GBP20.8bn to around –GBP14.1bn; a result that would be deemed as sterling-positive – with a rise in surplus indicating that more sterling is being bought to execute transactions within the UK.

EUR

A marginal rise in Euro-zone consumer confidence for December failed to give the single-currency any vast momentum yesterday. The result from the 17-member Euro-zone rose from -26.9 to -26.6 on the month, but in the wider 27-member EU, sentiment worsened to -24.1 from -23.8. This coupled with an unexpected drop in Italian retail sales from -0.1% in November (revised down from 0.1%) to 1.0% painted a fairly negative picture overall on the day.

The only Euro-zone data of note for the day crossed the wires early this morning – with the latest GfK German consumer climate number unexpectedly falling from 5.8 to 5.6 for December – a negative result for the broader economy as declining financial confidence is closely linked to weaker consumer spending.

USD

An unexpected positive upturn in December’s Philadelphia Fed national activity index did see the Dollar claw back some ground, after falling sharply against the Pound throughout the middle of the day. The index reading picked up from -10.7 to 8.1 across the month, the highest level since April – smashing economist’s expectations for a reading of -2.1. Existing home sales figures also produced a positive note – rising for the 17th consecutive month, to a rate of 5.9% annually, at a level of 5.04million sales. This was tempered with a rise in unemployment claims for the week ending 15th December – claims increasing by 17,000 to 361,000 overall.

Core durable goods orders figures will be the key data event from the US today – the forecast to see a drop to -0.2% from 1.8% previously; which would be dollar-negative – with a falling value in new purchase orders set to show a knock-on effect with an with overall drop in production activity.

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Written by Tom Tong

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