Sterling Falls After ‘Dire’ Retail Sales Release
The pound has been on a roller coaster this week, opening slightly higher this morning. Now, it’s fallen sharply against all major currencies after a shocking Retail report showed sales have fallen at the fastest rate in 7 years. Today’s Retail Sales release shows that higher prices caused British consumers to buy 1.8% less at the shops in March.
The US dollar regained some of its losses this week but it’s trending lower to the pound and euro. Today’s home sales releases are expected to be high because mortgage rates have slid to the lowest levels in 5 months and interest rates are expected to rise soon.
Pound Sterling – UK Markets
The pound plummeted from the highest levels we’ve seen against the euro and dollar since late last year. Researchers at Credit Suisse are confident that Sterling could rise, and they’ve upgraded their 12 month forecasts for the pound to dollar up to $1.25 from $1.20. They project Sterling to euro rates between £1.1363 and £1.11. However, Credit Agricole argues that the pound’s rally is a short-lived boost brought on by the General Election news which is seen to be good for politically uniting the UK ahead of Brexit negotiations. Speaking at the annual US Institute of International Finance summit, Bank of England’s governor Mark Carney spoke against President Trump’s intention to remove banking regulations that he claims impede growth. He championed a flexible approach, concluding that the regulations set up to prevent another crisis as happened in 2008-2009, must be ‘dynamic’ and ongoing and he cautioned against ‘compromising on the level of resilience’ regarding making reforms.
Today’s UK Retail Sales released by the Office for National Statistics show a rapid and unexpected drop in the volumes of goods British shoppers purchased in March. Sales had expected the decrease by 0.2%, but instead they fell by 1.8%. This is a sharp contrast from February sales which were up by 1.7%. The pound has dropped sharply on the Retail Sales report that economists are calling ‘dire’.
US Dollar – US Markets
The US dollar is holding at a stalled rate, reflecting the disappointment the markets have with the new president’s inability to immediately keep all of his campaign promises. The International Monetary Fund’s (IMF) and World Bank’s annual Spring meeting in Washington, DC is focused on the new US government. In their meetings, they’re discussing the implications of President Trump’s protectionist Trade policies. IMF’s Managing Director, Christine Lagarde, has arrived with the goal of helping to ‘socialise’ the new administration to the IMF’s perspective so that it has a chance to influence Trump’s future policy plans. The world’s top finance ministers and top central banks won’t be meeting with Trump’s trade delegation, however, because they’re in Indonesia attending preliminary trade discussions.
President Trump has launched a trade investigation that will target China for exporting cheap steel to the US, in a bid to keep his promise to revive American manufacturing. China is the world’s biggest producer of steel, accounting for 26% of steel used in the US. Since China produces far more than it uses, it’s able to keep prices down, which is why the US had failed to compete previously. The move to target China on trade comes as the US is also praising Beijing’s efforts at subduing North Korea. China and South Korea are on heightened alert after Pyongyang warned the US of a ‘super-mighty pre-emptive strike’.
Euro – European Markets
The euro has slid back today from a three-week high yesterday after a gunman attacked a police bus in Paris. The euro’s strength was on optimism when a poll predicted Emmanuel Macron would be victorious in the first round of the French elections on Sunday. In the Harris poll, Emmanuel Macron had pulled ahead to claim 25% of the vote. Le Pen had dropped back to 22%. Francois Fillon and Jean-Luc Melenchon were tied in third place with 19% of the vote. The poll, however, was taken before the recent attack on a Parisian policeman which was claimed by the so-called Islamic State. Previous to the attack, an International Fraternal order of Police poll showed 51% of the Gendarmerie planned to vote for Le Pen. She’s promised to add an additional 15,000 police officers to increase law and order, and also deport foreign criminals as well as close extremist mosques. With a third of voters still undecided, it’s feared that the attack might give Le Pen a last-minute edge.
The weekends are usually very quiet times for currency markets, but this weekend will prove an exception. And, should Le Pen or Melenchon do better than expected, it will further cut the euro’s value. The best-case scenario for a stronger euro on Monday would be a win for Macron with Fillon in second place. Eliminating the far-right and far-left candidates before the second round of votes would ease market tensions across Europe. It would also be celebrated as a victory for centrist politics after the shake-ups of Brexit and Trump.
Other Currencies – Highlights
The Australian dollar dropped to a 7-month low against the British pound after Theresa May’s announcement of a snap 8 June General Election. The Aussie dollar is now at its lowest level since December and fragile since the Easter holiday break. This Tuesday’s (18 April) Reserve Bank of Australia (RBA) meeting issued another pessimistic view of the economy down under. The RBA warned that the domestic labour and housing markets warranted ‘careful monitoring’ in the near future. This week, the Turnbull government radically altered Australia’s skilled migrant program by introducing the 457 visa. It takes effect in a year, and reduces eligibility for residency to only those candidates who are assessed as having a benefit to ‘the government’s longer-term training and workforce strategies.’
Iron ore is Australia’s largest export, contributing around A$75 billion to the economy and employing over 60,500 people. Iron ore prices, which have been wildly volatile, have sharply declined, which has a major impact on the Western Australian economy. Currently, the Metal Bulletin Iron Ore Index rose by 2.22% to $64.60 a tonne. That’s down from 31.9% from 21 February, and less by 18.1% for the year to date. The peak price was on 22 February when it sold for just over $94 per tonne, although that’s unsustainable, and analysts expect a price range to stabilise around $60 to $65 a tonne. China is Australia’s largest export market for iron ore, importing a near record volume of 95.6 million tonnes in March. According to the National Statistics Bureau, in the first quarter of the year, shipments to China rose by 12%, totalling 271 tonnes. Western Australia, the largest iron exporter in the world, will be dramatically impacted if China begins importing less ore in order to cut back on steel production as President Trump intends.