Pound soft as consumer optimism slides

UK retail data yesterday gave the pound a boost after suggesting consumer spending was weathering the storm of strong inflation and weak wage growth. Today’s household confidence figures suggest otherwise, however…

GBP/EUR has slipped lower to €1.1169, but GBP/USD is holding steady at opening levels of US$1.3075. GBP/AUD is stuck at AU$1.6388 and GBP/CAD at CA$1.6404, but GBP/NZD is climbing up to NZ$1.7467.

There’s no UK data scheduled for release today, but there’s still lots on the calendar to upset the pound. Read on to find out what…

What’s been happening?

The pound was largely on strong form yesterday after the latest retail data from the Confederation of British Industry (CBI) suggested consumer spending continues to hold up well.

Retail sales grew at the fastest pace in three months during July, with increased demand for summer clothing and groceries helping boost the retail sales index from 12 to 22.

However, CBI Head of Economic Intelligence, Anna Leach warned that the underlying factors keeping growth strong were ‘shaky’.

GBP/EUR was able to post a solid rise after a stellar performance from the latest US economic data pushed USD sharply higher across the board.

A preliminary estimate for US durable goods orders growth during July clocked in at an impressive 6.5% - well above the 3.9% forecast.

The previous month’s decline was revised to just -0.1%, after having been originally reported as a -1.1% fall.

Then, the advance goods trade deficit was shown to have narrowed to -US$63.9 billion, against forecasts of a smaller improvement to -US$65.5 billion.

GBP/USD also slipped lower on the latest US dollar strength, although the pound was able to retain more of its strength in the face of the charging USD than most major currencies.

Policymakers sounded less confident on inflation, however, pushing down the odds that they will hike interest rates again this year.

What's coming up?

The only UK data on the calendar today has already been released; GfK consumer confidence figures were published at midnight.

GBP exchange rates are therefore likely to trend at the mercy of Eurozone and US developments, thanks to the key data scheduled for release.

German consumer price index figures for July will further add to the debate over Eurozone monetary policy.

Inflation is expected to hold steady on the month, which isn’t a terrible result, but is far from the concrete evidence of increasing price growth that markets and the European Central Bank (ECB) wants to see.

Shortly after that, US second-quarter GDP figures are released.

Expectations are for an acceleration in year-on-year expansion from 1.4% to 2.6% which, taken together with yesterday’s strong data, is likely to significantly lift the odds of an interest rate hike in December, even after the Fed’s recent caution on inflation.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.