Worse-than-expected US retail sales cause further uncertainty on future Fed policy

Tom Tong16/Jul/2013Currency Updates

GBP

Alongside the euro, sterling closed Monday unchanged against the US dollar as we saw a quiet day.

Rightmove data shows, UK house prices in July grew at the slowest pace since January; however, on an annualized basis, prices increased at the fastest rate ever. The outlook for UK housing remains promising, and that sector is one of the stronger areas of the UK economy.

UK consumer prices are scheduled for release on Tuesday and inflationary pressures are expected to drop for the first time since January. Soft inflationary pressures allow the Bank of England (BoE) to keep monetary policy easy.

Higher petrol prices alongside rising food and clothing costs are seen to be driving increasing inflation up to 3.0% from 2.7% in May.

Annual inflation has been running persistently above the Bank of England’s 2% target for more than three. Bank watchers will get a clearer steer on where former Bank of Canada chief Carney stands when the minutes from his first monetary policy committee meeting are published on Wednesday. They are likely to retain a dovish bias after the Bank said two weeks ago that a recent rise in UK gilt yields was unwarranted.

The government’s green policies will cost consumers more, with energy bills rising by more than 19 per cent by the end of the decade. In a report published on Tuesday, npower said the average household energy bill could rise by £240 to £1,487 by 2020, driven by the impact of unprecedented investment in new infrastructure and the cost of improving energy efficiency in people’s homes.

EUR

As with sterling, Monday saw a quiet day in terms of economic data, though both Spanish and Italian governments said over the weekend that they have returned to growth. However, due to low growth and high debts, credit ratings agency Fitch downgraded France to a AA+ on Friday.
Spain’s economy minister Luis de Guindos said that as long as the government ensures the budget deficit continues to be cut alongside market reforms, within the next six months the economy will grow.

European car sales fell to a 17-year low in the month of June off the back of record unemployment in the region.

European unemployment was recoded at 12.2% in May and was likely at that level for the entirety of the second quarter.

Spanish Prime minister Mariano Rajoy was subjected further embarrassment with calls for his resignation over the slush fund scandal.

USD

Yesterday was a quiet day in terms of volatility, but we did see a retail sales report that showed that US retail sales rose less than expected in June. The reading came at 0.4%, 0.3% lower than forecast. Building materials fell by 2.2%, the US Commerce Department announced yesterday; the biggest fall since May last year. These figures further diminish expectations of a reduction in stimulus by the Fed this year. However, the greenback’s losses were offset by a separate report which showed that growth in New York’s state manufacturing sector accelerated in June. The dollar index rose a meagre 0.02% to 82.989, recovering from its last week’s low of 82.418.

S&P 500 experienced its longest winning streak since January, it climbed 0.1% to a record 1,682.5. Treasury yields rebounded from their lowest levels in week. Investors await Bernanke’s testimony to Congress tomorrow and Thursday for more details on further insight on when the central bank may taper its asset purchase.

Today, the most important data to note will be the Core CPI (Consumer Price Index), which is expected to stay the same as previous at 0.2%

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Written by Tom Tong

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