Pound takes heavy losses following Inflation Report

Claire Hogarth14/Aug/2014Currency Updates

Yesterday was a busy trading day. The pound took a hit after the release of UK’s average earnings, calculated both including and excluding bonuses. The dollar decreased versus the euro after releasing worse than forecasted results regarding retail sales. However, these losses were recovered at the end of the day. The USD gained almost 1% versus the GBP.

GBP

Unemployment in the UK in June fell to its lowest level in six years but, at the same time, total pay declined; which may ease pressure on the Bank of England to raise the interest rate.

The Office for National Statistics said unemployment fell by 132,000 in the three months to June to 2.08 million, or 6.4% of the workforce which is the lowest unemployment rate since 2008. Earnings are growing at a very modest pace. Average weekly earnings excluding bonus payments rose at an annual pace of just 0.6% in the three months to June, the slowest pace of growth since comparable records began in 2001. The Bank of England however signalled that it remains on track to raise interest rates early next year. GBP lost more than 0.5% versus the EUR and the USD.

No news will be released today for the UK.

EUR

Germany, France and Spain reported yesterday their Consumer Price Indexes. Most releases matched estimations. Noteworthy, is the report of the Wholesale Price Index for Germany. The index declined by 0.7% on a year on year basis and increased by 0.1% in July versus previous month. The consensus was respectively -0.9% and -0.2%.

Industrial production in the 18 countries that share the euro fell for a second straight month in June, an indication that the currency area’s economic recovery may have faltered again in the second quarter. The European Union’s statistics agency said output fell 0.3% from May, and was unchanged compared with June 2013. That was a surprise, with economists estimating a production increase of 0.3% during the month.

Though not very significant, Greece’s gross domestic product contracted by an annual 0.2% in the second quarter, slowing from a revised fall of 1.1% in the January to March period. The data beat expectations of economists, who had forecast an annual drop of around 0.4% for the period. The EUR remained flattish versus USD and increased almost by 1% versus GBP

This morning GDP reports were released for France and Germany. These came in in line with expectations. At 09.00 local time there will be the monthly report from the European Central Bank. At 10.00 Eurozone’s CPI and GDP reports will be released. Consensuses are an inflation rate of -0.6% in July and a GDP increase of 0.7% year on year for the second quarter.

USD

Bad news was released from the US on Wednesday. The most significant news was the report regarding the sales of retailers. The growth in July was the weakest in six months, dragged down by auto dealers. Overall retail sales were basically unchanged in July, ticking up only a tiny fraction from June. That result missed expectations as economists forecasted a growth in retail-sales of 0.2% in July. Excluding autos, retail sales rose 0.1% in July, also missing forecasts that called for growth to hold steady at 0.4%. At last, business inventories increased by 0.4% in June, slightly below expectations. The USD increased by more than 0.5% versus the GBP and remained flattish versus the EUR.

At 13.30 a few reports will be released for the United States. Besides import and export reports, the US Department of Labor will releases the weekly jobless claims. The consensus is 289,000.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.