Poor UK retail sales figure hamper recent sterling rally

Tom Tong20/Sep/2013Currency Updates

GBP

Despite hitting its highest level against the greenback since January yesterday morning, retail sales proved a bit of a reality check for sterling coming in at 2.1% which was 0.9% lower than estimates – falling the most in four weeks. While sales were down in August from the month before, they were still 2.1% higher than August last year, when the Olympics hit spending. Non-store retailing, which includes online shopping, saw the most growth however, in-store retailing still dominates the sector.

BOE minutes published on Wednesday showed the MPC voted unanimously to keep QE at 375bn and interest rates at a record low of 0.5%. The CBI said the UK’s factory order books were at their highest since 2008 and car production in the UK in August was 16.2% higher than a year ago. The manufacturing sector is closely watched by policy-makers hoping to rebalance the economy away from services, which, account for about 70% of the economy.

The automotive industry provides 720,000 jobs and has a turnover of £56bn and accounts for £27bn of exports which equates to 9% of the total – it’s return to pre-recession vigour will provide a surge of confidence for the wider economy.

The Public Sector Net Borrowing for August is due for release this morning and is expected to grow to £12bn – an unfavourable reading for the UK. Other than this, data is light on the ground.

USD

The unexpected federal reserve decision to maintain QE and not to taper caused widespread volatility in global markets throughout the trading session on Thursday. The dollar sell off that was sparked by the lack of tapering and downgrade in GDP projections saw EUR/USD reach highs not seen since February. However, as the day developed and we saw another spate of US data, the greenback firmed up and began to strengthen.

We saw positive initial jobless claims and existing home sales data surprise to the upside. The Philadelphia Fed Manufacturing survey also printed well above expectation coming in at 22.3 against a consensus of 10.

EUR

Euro clawed back some losses against GBP following worse than expected figures coming out for UK retail sales and also gained against USD following news yesterday of FOMC rejecting tapering of QE this month.

Despite growth being less than expected, Ireland’s economy has emerged from recession and even with poor unemployment figures prevailing, the economy grew by 0.4% Q2. This was driven by consumption and export growth which rose to 0.7% and 4.3% respectively. Ireland is projected to expand 1.3% for 2013 as a whole.

Greek unemployment fell by 0.3% from 27.4% to 27.1% between Q1 and Q2; the first fall in unemployment for 4 years, a slight improvement although still maintaining the highest unemployment in Europe.

Minimal data out of the eurozone today with Italian Industrial sales and Industrial orders MoM and YoY. Dr Jens Weidmann, Bundesbank president is making a speech this morning and only other data release from the eurozone is the EUR Consumer confidence which is expected to come in at -14.5, falling from -16.0.

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Written by Tom Tong

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