UK Retail Sales Climb on Black Friday Offers
A day has passed since the FOMC made a symbolic decision to raise the US Fed funds rate for the first time in nearly a decade by a quarter percentage point, as had been widely anticipated. Also, the Fed Chairwoman offered a positive signal about the growth prospects of the US economy and confirmed that the central bank’s future policy moves will happen in a gradual pace. Though initially gains in the US Dollar on the back of the rate rise news were limited, it later rallied against its major currency counterparts and has resumed its upside momentum even this morning.
Moving ahead, the just out UK retail sales surged above estimates in November, primarily boosted by Black Friday discounts and Cyber Monday sales. Earlier today, data showed that German business sentiment had an unexpected fall in December.
Pound Sterling – UK Markets
Sterling received a sharp blow against the US Dollar late yesterday after the US Fed finally made an upside move in key interest rates for the first time in nine years, signalling confidence in the US economic activity. The currency pair dropped below the 1.50 mark, following the conclusion of one of the most important monetary policy events of 2015. Earlier in the day, sentiment towards the Pound had already dampened following mixed reaction towards the latest UK labour market report. Traders seemed to have digested the fact that despite a surprise fall in unemployment rate, the slowdown in wage growth for the three months until October could be viewed negatively by the Bank of England.
Looking ahead, the just out upbeat UK retail sales update also failed to lift the Pound against the greenback, with the currency pair continuing to hover close to yesterday’s levels. Retailers experienced a strong rebound in November sales growth following October’s disappointing outturn as Black Friday discounts and internet sales boosted consumer spending in the nation.
US Dollar – US Markets
As expected, the FOMC yesterday ended an era of zero interest rate policy for the first time in almost a decade, reflecting confidence that the US economy continued to improve on the back of a stronger labour market and increased household spending. Despite the significant volatility in the past few days surrounding the Fed rate decision, there was not much reaction when the verdict was finally announced, indicating a job well done by the Fed Chairperson and her colleagues in avoiding surprises. The greenback experienced more pronounced gains across the board during a subsequent press conference by Janet Yellen, when she stressed the gradual nature of further rate rise trajectory, suggesting that the US economy was strong enough to withstand more policy tightening. The Euro – US Dollar initially soared above the 1.09 mark, but reversed its gains by the end of the Fed Chief’s address.
Shifting focus back on the macroeconomic indicators, investors will today eye weekly claims for unemployment benefits and the Philadelphia Fed’s survey on manufacturing activity in the US to gauge the health of the economy at the end of 2015.
Euro – European Markets
Earlier in the day, the release of Ifo Institute’s survey numbers on business sentiment and economic outlook based on a cross-section of businesses in Germany stirred little market interest. The Ifo data has been on an upward trend lately, but the December update showed a softening of current conditions and business climate as companies were cautious about global risks facing Euro zone’s largest economy. Also, risk stemming from a renewed slide in oil prices this month is likely to have threatened German business manufacturers. Meanwhile, the German Ifo’s business expectations index remained steady for December. The Ifo’s update follows this week’s ZEW survey on the German economy which showed that Bundesbank forecasted the economy to grow by 1.7% this year and by 1.8% in 2016, on the back of booming domestic demand as consumers revel in rising wages and record high employment. The Euro’s recovery momentum against the Pound came to a halt, post the publication of the Ifo survey.
In a short while, Euro zone’s construction output data will come to the fore.
Other Currencies – Highlights
Looking beyond the FOMC rate decision, the US Dollar – Swiss Franc currency pair has maintained its gains all throughout today, reflecting optimism amongst greenback investors about the ability of the US economy to handle further tightening of monetary policy which was sparked after the Fed Chairwoman Janet Yellen’s press conference.
In Switzerland, the State Secretariat for Economic Affairs or SECO slightly lowered its growth forecast for this year to 0.8% from 0.9%, but left the growth outlook for next year unchanged from its earlier September forecast. Considering the gradual improvement in the global economy, the SECO projected Swiss GDP to rise further in 2017. The forecast suggests that economic activity will normalise amid the presence of some long term effects of the Swiss Franc appreciation. Meanwhile, the government report indicated that consumer prices are set to continue its negative trend next year until the effects of a stronger Swiss Franc and lower oil prices completely disappear.