Currency Update – Friday

Currency Update – Friday

It has not been a good week for Sterling; the trouble started at the end of last week with a downward revision of GDP, and the Nationwide house price survey, showing a 10.5% drop, plus yesterday's weak retail figures, have deepened the gloom. The CBI Industrial Trade Survey showed retail sales dropping at their fastest rate 1983, which is when this survey began. Along with the volume of sales declining, the volume of expected sales is falling at a similar rate, with the only bright spot in the data slight decline in the expectation of further price rises, which may indicate that the peak of inflationary pressures is past. Typically the BoE member Blanchflower called for a quick cut in official interest rates to stave of the danger of a 'very serious and long lasting recession.'.

Unsurprisingly the retail data has sent Sterling lower, testing 1.24 against the Euro on trading this morning; however the big drop came against the Dollar which was buoyed by it's own good news. Whereas the UK's GDP has been revised downwards, it seems the Fed's drastic rate cutting has had the required effect, and the GDP in the Us was revised upwards with an impressive 3.3% growth in the 2nd quarter. The figures aren't quite as positive as they at first look, almost all the growth (3.1%) came from international trade, and with the Dollar on the march, plus a slowdown in America's largest trading partners, this growth is not sustainable. The Dollar has still managed to push the Pound down to under 1.83.

The Dollar did not have it all it's own way yesterday as the latest hurricane to hit the Gulf of Mexico drove the price of oil higher, allowing the Euro to climb above 1.48 against the Dollar. However an announcement from the International Energy Agency that they would release their reserve stockpiles in the case of any damage, helped bring the price of oil down $5, and support the Dollar in a move back below 1.4750. The hurricane will give the price of oil some support, as will the fears that Russia will cut the pipeline into Europe over the recent geopolitical tensions.

The UK data is done for the week, which given the gloomy nature of the weeks releases, is a relief. The data due out today is split between the Eurozone this morning, and the US this afternoon. In the Eurozone, we have a first estimate of CPI, expected to ease slightly from the previous month's 4.1%, and a couple of business surveys which are expected to show declining confidence, which could ease the Euro's strength from yesterday.

In the afternoon we have the PCE deflator, a measure of inflation, as well as a couple of economic surveys,  which including a consumer confidence, and . The industrial survey is expected to ease slightly after a few months of improvement, while the consumer confidence is expected to rise. With the US economy is a state of recovery the inflation figures may provide some downside risks, as they are expecting to rise to 4.4%, but as this is unlikely to move the Fed's stance on interest rates it is probably not going to effect the Dollar's strength.

Michael Corcoran | Treasury Solutions | nabCapital

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