Sterling Higher as Data Provides Support
August 18th: Highlights
- Retail sales caps an encouraging week for data
- Support at 0.9140 holds
- ECB Minutes provide insight into monetary policy
U.K. Data Provides a little comfort
Retail sales data released yesterday showed spending in July rose month on month by 0.3% although the year on year data was a little weaker following a stellar performance in July 2016.
The pound found some support that had been distinctly lacking during the early part of the week despite the better than expected jobs employment and inflation data. The medium-term support for against the Euro at 0.9140 held strong while the dollar resumed its gyrations providing impetus for the pound to test resistance at 1.2900.
Last week’s trade data was mixed with current performance reasonably strong but concerns over Brexit progress lowered future expectations. Exporters are prepared for Brexit as a concept but are concerned over the lack of progress being made in negotiations. It is going to be some time before they receive any firm guidance and while the uncertainty exists business investment will continue to fall.
Next week is a fallow week for U.K. data giving the market the chance to contemplate whether the U.K.’s economic performance is as bad as they had feared.
Brexit concerns continue to affect sentiment
The bureaucratic nature of the EU dictates that even if they set a ludicrous timeline for a certain event to take place or an issue to be resolved, they expect that timing to be rigidly adhered to.
Of the three initial EU requirements only the Irish border appear to have received any attention. Since 1923 there has been free movement of people between the two Irish states which obviously led to free movement throughout the U.K. It seems that following the U.K.’s proposal that the status quo remains (hardly taking a long time to consider) that won’t be good enough for the EU who with a typically heavy-handed attitude want to establish border controls that have never existed.
Far from expediting Brexit, such intransigence could lead to an “Irexit” debate starting since the effect on the Irish economy could be devastating.
ECB Minutes confirm sanguine attitude to higher rates
It was therefore something of a surprise that the market reacted negatively to the minutes of the most recent meeting which were released yesterday. The common currency fell initially but quickly recovered as buying interest from all quarters was piqued by the unexpected fall.
It seems that traders are unconvinced by the recovery of the Eurozone economy particularly since there are one or two “maverick” economies within the region where data and reality mean totally different things.
German Finance Minister Wolfgang Schaeuble made a veiled request for tighter policy this week saying he believed that the era of easy money was coming to an end. His words could easily have been interpreted as “I am really looking forward to having a German as ECB President. We will then be able to bend policy to suit German needs more”. Jens Weidmann the Bundesbank President is widely expected to be the next ECB president when Sr. Draghi leaves in November 2019.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”