Sterling Slumped after Weak Retail Sales
The British Pound dropped after the publication of disappointing data regarding the UK’s weak retail sales in May. Retail sales fell more than anticipated by analysts, showing that consumers are getting more cautious about spending their money. High inflation and weak wage growth seem to be responsible for the decline in retail sales, which is an alarming indication that the economy is starting to slow down.
In the US, the Fed raised its benchmark interest rate to 1.25% as it was anticipated, marking the second rate hike in the last three months. The Fed also outlined its plan to reduce its balance sheet by selling assets that had been bought during its stimulus programme. Fed Chair Janet Yellen said that the process can start soon and added that the US economy is growing despite the inflation running below target.
Pound Sterling – UK Markets
Today, Sterling slumped against the US Dollar, losing 0.4% in value, trading at $1.27. The Pound also weakened against the Euro with the exchange rate set at €1.13. The British currency dropped on news that retails sales in the UK in May were below expectations.
Data published by the Office for National Statistics (ONS) showed that retail sales in May dropped sharply adding to the fears that the British economy is slowing down. Retail sales fell by 1.2% month on month in May, compared to 0.8% that market analysts were expecting. May’s result followed a strong growth of retail sales in April, which some experts said that it was due to the Easter holidays and the warm weather at that time.
According to data published, Britons spent 4.1% more in shops than in 2016, but took 0.9% more products with them back home. Some economists suggest that the most alarming sign is the 0.9% annual rise in sales volumes, which is the weakest since 2013. They believe that UK consumers are starting to become reluctant regarding their purchases since they are experiencing weak wage growth and rising inflation. With consumers becoming more cautious day by day on where they spend their money, market analysts believe that investors will soon feel the pinch of the economy’s slowdown.
US Dollar – US Markets
The US Dollar rallied against the Euro, gaining 0.4% in value and trading at €0.89. As it was expected, the US Federal Reserve raised its benchmark interest rate to 1.25%. This was the second time that the Fed raises the interest rate in the last three months.
The Fed’s rate-setting committee said that the decision for the interest hike was based on the economy’s continuing strengthening and the improving number of added jobs. The committee noted that a recent softness in inflation is seen as transitory. Economists suggest that the Fed hinted the possibility for one more rate hike during this year and three more in 2018.
The Fed announced that it will begin the normalisation of its balance sheet this year. Fed Chair Janet Yellen said that “we anticipate reducing reserve balances and our overall balance sheet to levels below those seen in recent years, but larger than before the financial crisis.”
Euro – European Markets
The Euro to US Dollar exchange rate was driven downwards, set at $1.11. Once more, the spotlight is on Greece and the Eurozone finance ministers’ meeting with International Monetary Fund (IMF) officials, in which they will discuss whether the Mediterranean country has delivered on its austerity targets.
The Eurozone’s finance ministers and the IMF aim to strike a deal in order to unblock loans to Greece. The IMF believes that Greece needs a debt haircut, a view that German officials have rejected in the past because they think that such a solution could be used in the future by other EU countries that suffered debt problems. Greek president Prokopis Pavlopoulos said in an interview that Greece has adopted the requested reforms and expects its European counterparts to comply with their commitments on the issue of debt relief.
A spokesman for Wolfgang Schauble, the German finance minister who is a hardliner on the debt issue, said that Germany expects an agreement on a sustainable overall package, but added that there is no guarantee that Greece will get a debt relief. The Greek prime minister Alexis Tsipras has already talked about a political solution of the problem given by the European Union’s leaders, aiming to bypass the Eurogroup’s decisions. Greece is facing debt repayments in July.
Other Currencies – Highlights
Sterling slumped against the Australian Dollar, losing 0.4% in value, trading at 1.67 AUD. The Aussie strengthened on news that the unemployment rate dropped, instead of remaining stable as it was expected, and that the number of jobs added to the economy was four times more than anticipated. The jobless rate in May dropped to 5.5% from April’s 5.7%. The economy added 42,000 new jobs in the last month, well above the 10,000 expected. However, the strengthening of the labour market hasn’t lifted the consumer sentiment with the Australians being concerned about job security and weak wage growth.
The British Pound rallied against the New Zealand Dollar trading at 1.76 NZD. The reason behind the Kiwi’s weakening was the release of New Zealand’s GDP data, which disappointed market analysts. According to the data published by Statistics New Zealand, the country’s GDP grew by 0.5% in the first quarter of 2017, which is less than the economists’ forecast of 0.7%. The country’s economy grew less than expected because of shrinking dairy exports and the first fall in construction activity for the first time since summer 2015.