YB Currency Update – Friday 19th June
The Pound took a knock downwards yesterday, as fears that the recovery may not be as rapid as many hoped were increased by retail sales figures which didn’t increase 0.3% as expected, but actually fell 0.6% from the same period a year ago. The recovery did seem to be gathering pace with a rise in industrial production and the stabilisation in the housing market, pointing to the government’s stimulus measures having an effect. With consumption comprising such a large amount of British GDP the fall in retail sales is a blow to hopes of a quick recovery, and yesterday we also got the other effect of the huge government spending in the public sector borrowing figures. The figures showed an increase in borrowing of GBP19.9bn, compared to an increase of just over GBP1bn at the same time last year, this was roughly in line with expectations, but shows just how big a hole the government, of whichever party, is going to have to dig out of over the next few years/decades. The news gave the pound a shock causing it to fall below 1.62 against the Dollar and 1.17 against the Euro.
The dip though was relatively short lived, as although domestic news may have weighed on the Pound, international news helped give it support. The world bank raised it’s growth forecast for China back above 7%, but the big events were over in the US where a regional survey showed a better than expected slowdown in the rate of decline, and was pretty close to staying steady, plus the jobless claims figures actually fell for the first time in 21 readings. Stock markets rose, with the S&P500 rising 0.8%, after three days of falls, and the increased had the usual effect on the currency markets dragging Sterling back up above 1.1750 against the Euro, and up towards 1.64 against the Dollar.
The rise in stock markets has also boosted the other usual suspects with the AUD pushing Sterling back down below 2.04, and also rising back above 0.8 against the USD. The World Bank’s increased forecast for Chinese GDP has had little effect, as the are slightly behind the markets which has been predicting recovering growth, but the official confirmation is likely to help commodities, which have suffered lately with Copper falling of it’s eight month high last week, by 7%, and after falling back slightly oil has again started to rise pushing upward towards $72/bbl. The improving global economy is factored into the AUD’s price, but the rise in commodities is still likely to push the currency higher, against the Dollar, it is still likely to fall against the Pound which, starting from a low base, could outperform it.
There is a dearth of economic data out today, so the general tone of stock markets is likely to dominate, as these are likely to stay roughly flat, currencies will most likely do the same. Sterling has had a tough week, and in spite of a few knocks it is still sitting roughly in the middle of it’s recent range, which should give the Pound a good base for any further moves upwards.