Pound Rises as Retail Sales Beat Expectations
Sterling got a boost against the US Dollar and the Euro when data from the Office for National Statistics (ONS) showed that British retail sales surpassed all expectations in August. The good result gave traders the hope that the Bank of England (BoE) will start hiking its interest rates as soon as November and rushed to buy the Pound. The OECD published its economic outlook for 2018, leaving the UK’s economy growth forecast unchanged at 1.6% in 2017 and 1.0% in 2018.
Markets are expecting the news from the US regarding the Fed’s decisions on interest rates and the unwinding of its balance sheet. Janet Yellen, the Fed’s Chair, will answer questions in a press conference right after the end of the meeting. Analysts anticipate that the benchmark interest rate will remain unchanged, but they would expect more details about the tightening of the Fed’s monetary policy. In New York, Donald Trump delivered one of the most extraordinary speeches ever in the United Nations (UN) General Assembly, threatening North Korea with annihilation.
Pound Sterling – UK Markets
Today, the Pound jumped against the US Dollar with the exchange rate set at $1.35. Sterling also edged up against the Euro with the exchange rate set at €1.12. The British currency strengthened considerably on news that retail sales in the last month of the summer smashed expectations.
According to data provided by the ONS, UK retail sales in August increased by 2.4%, on an annualised basis, instead of 1.1% that City analysts had forecast. On a month-to-month basis, retail sales in Britain grew by 1.0%, five times more than analysts had predicted. Market experts believe that sales in the UK during summer have benefitted from the fact that some Britons preferred to spend their vacation in their homes and that the weak Pound made tourists spend more.
August is the third consecutive month that UK retail sales are growing. According to the ONS report, non-food stores and non-store retailing were the main contributors to growth. ONS economists stressed that year-on-year contribution of food stores remains flat and that a fall in the contribution of growth within petrol stations has been recorded. The ONS report concludes that purchases of non-essential items helped UK retail sales to grow.
US Dollar – US Markets
The US Dollar continued to drop against the Euro with the exchange rate set at €0.83. The US Dollar Index (DXY), which measures the Dollar’s value against six major competitor currencies, lost ground coming in at 91.77.
Markets are expecting to listen to what the Fed’s board decided in the two-day meeting regarding the central bank’s monetary policy stance. The Fed will announce its decision on its benchmark interest rate, which most analysts believe that will remain unchanged at 1.25%. Latest economic data regarding the US have increased the probability for a hike in December to 50% from 31% in the beginning of September.
Furthermore, today could be the Fed’s D-Day for the announcement of its balance sheet reduction. Many market experts believe that Janet Yellen will announce the start of the Great Unwinding, as the Wall Street Journal calls it, marking the end of a very long in duration quantitative easing programme. Analysts note that the best way to do that would be to reduce holdings in a very slow pace. Since the Fed has hinted at adopting a policy such as that, economists are eager to learn to what level of the balance sheet the Fed targets in the long term.
Euro – European Markets
The Euro edged up against the US Dollar, conquering the $1.20 mark. The single market currency gained ground, taking advantage of the Dollar’s weakness just before the Fed’s post-meeting announcements.
Positive news came once more from Germany. During August, producer prices in Germany increased by 2.6%, on a year-to-year basis, surpassing expectations for a 2.5% rise. In July, producer prices had increased by 2.3%. On a monthly basis, producer prices rose by 0.2%, better than the 0.1% expected. Results such as these reveal the good condition of the German economy and have helped Angela Merkel remain the primary candidate for Chancellorship in the upcoming elections.
Autonomous Research, an equity and credit research firm based in London, published a report which said that Deutsche Bank is an institution “beyond repair.” The report stated that the German bank is facing serious problems as a decade of underinvestment has left it behind such competitors as JPMorgan. The firm’s analysts stressed that multiple scandals involving the bank damaged its reputation and added that shareholders have expressed their discomfort with the leadership’s actions.
Other Currencies – Highlights
Sterling dipped against the Australian Dollar, trading at 1.68 AUD. Westpac’s Leading Index declined by 0.1% in August. In the report accompanying data, it is stated that the Leading Index’s growth rate remained negative for a third consecutive month, pointing to below trend momentum. The purpose of the index is to give Westpac’s clients a glimpse of the likely momentum in the first few months of 2018. Westpac’s analysts insist that the need to raise interest rates in 2018 seems unnecessary.
The Pound dropped against the New Zealand Dollar, trading at 1.83 NZD. The Kiwi also hit a six-week high against the US Dollar on news that the ruling NZ National Party regained the lead in polls just a few days before elections. Data released by Statistics New Zealand showed that the current account deficit shrank to 2.8% of the GDP in the second quarter of the year, after coming in at 2.9% in the first quarter.
Sterling to Swiss Franc exchange rate remained stable, set at 1.30 CHF. A report by ERSTE bank suggests that additional downward pressure on the Franc’s value appears likely in the coming months since the economic upswing in the Euro-bloc continues. ERSTE analysts predict that the Euro to Swiss Franc exchange rate will set at 1.16 CHF by the end of the year.