UK Economy Slowest in G7
The weak Pound is hurting consumers more than it has helped exports, according to Pantheon Macroeconomics’ analysis of yesterday’s GDP figures. They also report that the UK economy is growing slower than any of the other G7 countries due to uncertainties caused by Brexit. In spite of the weak Pound, exports increased by less than had been expected in the second quarter of the year.
The Euro may strengthen further in reaction to European Central Bank (ECB) chief Mario Draghi’s speech at the Jackson Hole symposium later today. The US Dollar could fall if US Reserve Bank (Fed) chief Janet Yellen addresses the Fed’s concerns about low inflation or high student loan debt as arguments against raising interest rates in December.
Pound Sterling – UK Markets
The Pound is up by 0.13% to the US Dollar, with the exchange rate at $1.28. Sterling is weak against the Euro, improving today by 0.13% with the exchange rate €1.08.
Sterling was weakened by the release of the UK’s second quarter GDP which showed that consumer spending has slipped to 0.1%, the weakest level since 2014. Government spending and capital investment rose by more than had been expected, compensating for the fall in household and business spending. Increasing inflation and slowing wage growth are expected to continue through the year, which will likely continue decreasing spending. Taking stock of the latest GDP data, economists have suggested that UK will experience a technical recession in 2018.
Yesterday’s release of retail sales by the Confederation of British Industry (CBI) underlined the reduction in consumer spending as sales have dropped to the lowest level in a year. CBI notes that year-on-year online sales growth has dropped below the average rate and they expect this to improve next month. CBI blames rising inflation for the decrease from July’s +22 reading to August’s level of -10 in their survey of British retail businesses.
Brexit uncertainty and the lower value of the Pound are cited as reasons why the UK’s net migration figures have fallen to the lowest levels in three years, according to data released by the Office for National Statistics(ONS). An increase of 17,000 people from the so-called EU 8 countries left the UK, and the number from other European countries was the largest seen in almost a decade. The drop in the value of the Pound to the Euro reduces the amount of remittance they send home. The ONS also records less immigrants coming to the UK, indicating the Brexit vote is dissuading Europeans from moving to the UK.
US Dollar – US Markets
The US Dollar slipped by 0.13% against Sterling today with the exchange rate returning to $1.28. The Dollar is flat against the Euro, trading at $1.17. The US Dollar Index (DXY), which measures the value of the US currency against six major currencies, is up by 0.11%, to 93.30.
The Dollar could rise if Federal Reserve (Fed) chair Janet Yellen signals the Fed is confident enough in the US economy to raise interest rates in December. The Jackson Hole central banks’ meeting is hosted by the Kansas City Federal Reserve, and the president of that reserve bank, Esther George, has said rates could rise again this year if the US data continues to “hold up. “The speech by Yellen, on the topic of financial stability, may be her last address at Jackson Hole, since president Trump might replace her in January.
Ratings agency Fitch reported that the US’s current “AAA” rating, which is the highest sovereign level available, is at risk if the government doesn’t raise the federal debt ceiling in October. Treasury Secretary Steven Mnuchin urged Congress to raise the statutory borrowing limit above its current level of $19.9 trillion so that the government avoids what Fitch has termed: “potentially negative implications.” President Trump has raised the spectre of a government shutdown if lawmakers don’t agree to fund his planned Mexican border wall.
Euro – European Markets
Euro lost 0.13% of value to the Pound, exchanging at £1.08. Euro is steady against the US Dollar, exchanging at $1.17.
The Euro could slip later today if ECB chief Mario Draghi succeeds in convincing the market that the ECB isn’t ready to start tapering off its stimulus programme. Draghi has the challenging task of dampening expectation that the ECB won’t taper its €2 trillion Euros bond-buying programme soon in order to keep the Euro from rising higher and hurting exports. The ECB is likely to make a decision to begin reducing their monthly bond buying in October, at the earliest, according to Erste Bank economists.
Germany’s GDP and Trade data, released by Destatis today, show that Europe’s economic powerhouse grew as expected by 0.8% year-on-year and 0.6% month-on-month for July. Consumer spending for the second quarter grew by 08% compared the same period a year ago. Business confidence decreased slightly to 115.90 from July’s all time high reading of 116 in July as indicated by the Ifo Institute for Economic Research. The slight drop in the Ifo current assessment was balanced by an increase in business expectations to 107.9 from 107.3 in July.
Other Currencies – Highlights
The Pound slipped by 0.02% to the Australian Dollar, trading weaker at £1.61. The Australian Dollar rose by 0.19% against the US Dollar, trading higher at 0.79AUD. The Euro to Australian Dollar rate is 0.19% lower at €1.48.
Fulltime employment is steadily rising in many states of Australia, especially in the housing market where housing construction has kept the “economies humming,” according to ANZ Bank. The bank warns that this source of jobs in the south-east areas is expected to “fade”, however. The industry is “not adding momentum” to the regions of New South Wales (NSW), Victoria and the Australian Capital Territory. Approvals of new housing units in Victoria and NSW have dropped steadily since November 2016. In NSW, record levels of public infrastructure spending are a key driver of economic growth.
The Pound has lost 0.05% to the New Zealand Dollar, exchanging at 1.77 NZD. The Kiwi to US Dollar exchange rate rose by 0.31%, exchanging at 0.72 NZD. The Euro to New Zealand Dollar exchange rate is €1.63. The New Zealand Dollar’s recent strength wasn’t a hindrance for trade, which recorded a surprising boost by 85 million NZD. The surge in exports was unexpected since the Kiwi has been strong all year. In July, it reached its highest levels against the US Dollar since May 2015. Imports increased by 5.4% year-on-year, to a value of 232 NZD due to a sharp rise in vehicles and automotive parts and accessories. The New Zealand Dollar has strengthened to a two day high against the Japanese Yen, rising slightly from a five-month low against the Australian Dollar in Asian markets today.