Retail sales rescue Carney yet again
May 19th: Highlights
- Sterling makes multi month high before correcting
- Euro holds above 1.3000
- EUR/GBP cross volatile
Trump off the hook?
Sterling broke through the 1.3000 barrier versus the dollar as a perfect storm of a likely landslide election victory, stronger than expected retail sales data and political drama in Washington combined. The pound reached a high of 1.3050 before collapsing with alarming speed making a low of 1.2888 before recovering to close 0.3% lower on the day at 1.2935.
The reason for the crash is so far unknown but it again highlights the problem of liquidity or lack thereof. Unpredictability, caused by the sudden withdrawal of liquidity, is fast becoming a hot topic in the regulation of the FX market.
One reason for Sterling’s rapid correction could be a video of former FBI head James Comey stating that he wasn’t coerced to end an investigation and neither he wasn’t pressured politically. If taken at face value this would appear to be the panacea Trump had been searching for.
During this turn of events, the Euro fell but not by the same margin or with the same velocity as the pound. This would point to the liquidity issue being unique to Sterling.
Retail Sales highlight the role of the Consumer
There are several factors behind this data, a particularly warm early April, the anomaly of a late Easter but BoE Governor Mark Carney will surely see it as vindication of his less than concerned attitude towards inflation.
The consumer has continually come to the rescue of an MPC starting to be accused of “sitting on its hands” as inflation rises. The realization that real wages are falling has, so far, been lost on the consumer.
One of Carneys other favourites is to look at trends and he will not be too carried away by yesterday’s data. He knows that the headwinds of Brexit and even higher inflation are problems waiting just over the horizon.
Optimism finally dawns in the Eurozone
There is some way to go before there can be a test of the May ‘16 high of 1.1460. It will take a change of heart from the ECB towards the potential within the economy for that to happen. Sr. Draghi remains cautious over the sustainability of the recovery and until he changes tack, the single currency remains vulnerable to a correction caused by a simple lack of further buyers or a turnaround in the fortunes of President Trump.
Next week’s events of note:
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.”