Pound edges away from recent lows

UK retail sales data yesterday suggested that consumers were rowing back on non-essential purchases to cope with rising food costs. With little else in the way of developments, the pound softened, but has rebounded this morning.

The pound has climbed 0.3% against the euro and the US dollar this morning, with GBP/EUR at €1.1076 and GBP/USD at US$1.3021. Bigger rebounds of 0.4% have been seen against the Australian dollar, New Zealand dollar and Canadian dollar. GBP/AUD is at AU$1.6518, GBP/NZD at NZ$1.7789 and GBP/CAD is at CA$1.6505.

It’s another quiet data day, so will sterling get pressured lower by the long-term outlook, as Brexit fears continue to build?

What’s been happening?

There was little in the way of major new developments yesterday, yet the pound nonetheless found itself weakening against some of its peers - and tumbling against others.

Data from the British Retail Consortium (BRC) showed that consumers were cutting back on non-essential purchases - with non-food sales dropping 0.7% - in order to meet the costs of rising groceries. Food sales grew 2.3% in the three months to July, although the BRC said this was mainly because of rising prices, rather than increasing volumes.

Although another sign of a slowing post-Brexit economy, this was hardly enough to justify the significant weakness seen by sterling across the board.

With little else to focus on, markets have turned their attention to the topic of the Brexit bill - the cost the UK must pay to meet its financial obligations as it negotiates to leave the EU. Sources have suggested this will be in the region of £36 billion.

The euro was not performing well elsewhere, thanks to weak German trade figures, but GBP/EUR still declined. The German trade surplus rose less-than-forecast, while imports and exports fell sharply, instead of growth just slowing.

Meanwhile, the US dollar was boosted by a strong recovery in economic confidence. The index, released by Gallup, jumped from 2 to 7 over the week ending August 6th, and that’s without taking into account Friday’s bumper jobs report, so sentiment could rise further.

Overall, it was such a quiet day that markets were looking more long-term to make investment decisions, which didn’t favour the pound.

What's coming up?

It promises to be another quiet day tomorrow as far as economic data is concerned, so we could the pound, euro and US dollar moving in correlation to the long-term outlooks of their respective economies, rather than any pressing new developments.

That said, midday US MBA mortgage applications figures for the week ending August 4th could give USD a nudge up or down; consumers usually have to be confident in their financial situation and the health of the wider economy before making such a large commitment.

Therefore, rising mortgage demand is a sign that consumers are feeling good about the future.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.