Sterling Strengthening as UK Retail Sales Fall
Sterling strengthened against the US Dollar and the Euro, despite the political uncertainty caused by the upcoming parliamentary elections. A new poll for ITV showed that Theresa May won’t be able to have the majority in the parliament. Analysts suggest that the Pound will benefit if there is a clear winner in the general election on Thursday. New data regarding retail sales and house rents indicates that the British economy is slowing down.
The US Dollar hit a six-month low in an index that measures the currency’s value against a basket of six major competitor currencies. The US currency is affected by the release of weak economic data and fears that the testimony of former FBI director, James Comey, in front of the Senate Intelligence Committee, will have an impact on the US government.
Pound Sterling – UK Markets
Today, Sterling rallied against the US Dollar with the exchange rate between them set at $1.29. The Pound also performed well against the Euro, increasing in value by 0.2% and trading at €1.14.
The UK’s parliamentary elections are just two days away. According to a poll by Survation for ITV television, Theresa May’s lead over the opposition Labour party has narrowed to just 1%. Such a result, if replicated in Thursday’s elections, would put in jeopardy the Conservatives’ majority in parliament. Opinion polls by other leading firms have given wider leads for Theresa May’s party. It’s still unclear if the London terrorist attacks will affect voters and which will be the impact on the elections.
The latest report from the British Retail Consortium said that UK retail sales shrank by 0.4% in May, giving new evidence that parts of the country’s economy are slowing down. Rising inflation has hit households, reducing the available income for purchases after essentials, such as food, have been covered. Another report regarding the house market showed that average rents in the UK declined for the first time in the last eight years.
US Dollar – US Markets
The US Dollar remained stable against the Euro, trading at €0.88. The US currency also fell to a six-week low against the Yen, trading at ¥109.68.
The US Dollar is affected by the weak US Non-Farm Payrolls data report which didn’t satisfy economic analysts and James Comey’s upcoming testimony to Congress. On Thursday, the spotlight will be on the former FBI director who will testify to exchanges in which Donald Trump pressured him to abandon an investigation into Mike Flynn, a former National Security Advisor. Flynn was sacked for not disclosing conversations with Russian officials.
The White House revealed that the new tax legislation will be introduced in Congress, after the Labour Day holiday, which is on 4 September. Government officials said that the tax code reform is important, but tax cuts will be top priority in order to boost the US economy.
Euro – European Markets
The Euro retained its value against the US Dollar, trading at $1.12, but dropped against the British Pound with the exchange rate between them set at £0.87.
Sentix, a German-based research group, published a report which suggests that investors’ morale, across the Eurozone, is at the highest level of the last decade. The result was underpinned by promising economic reports coming from Eurozone countries. According to the Sentix report, investors believe that the economic situation in Europe has been improved, spreading optimism for future prospects.
Retail sales in April, across the Eurozone, rose by only 0.1%, contrary to the expected 0.2%. Retail spending, on a yearly basis, was 2.5% higher than in April 2016.
Other Currencies – Highlights
The British Pound gained a bit of ground against the Australian Dollar, trading at 1.72 AUD. The Reserve Bank of Australia (RBA) announced its decision to keep its interest rate at 1.50%, with analysts pointing out that the move was widely anticipated. The Australian Bureau of Statistics (ABS) released data regarding the country’s economic activity for the first quarter of the year. Australia’s current account deficit (CAD) narrowed by 11%, but the bad news came from the net export data, which was disappointing, declining in the first quarter and coming below expectations. Economists expect that this will affect the GDP figures due to be published tomorrow.
Sterling slumped against the New Zealand Dollar, losing 0.4% in value and trading at 1.80 NZD. The Kiwi continues its recovery against the British currency, which is based on the upbeat data regarding the state of New Zealand’s economy. According to a report, the building activity fell by 3.5% in the first quarter of 2017, mainly because of a pull-back in non-residential construction in Auckland. Despite the fall, market experts believe that this is temporary, but stress that cost pressures in this specific sector are continuing to build.