The Pound rallied across the board on Thursday, rising over 1.0% versus the US Dollar (GBP/USD) and 0.30% against the Euro (GBP/EUR) after UK Retail Sales numbers smashed economists’ predictions, registering growth rather than declining. Forecasts suggested that the UK would see a -0.3% tumble in August, but instead, the monthly reading came in at +0.3%. The annual figure came in at 3.5% in August from July’s positively revised 4.0%, and a far sight higher than the 2.3% expectation.
Sterling Surges (GBP/USD, GBPEUR) as UK Retail Sales Beat Forecasts
The Office for National Statistics stated:
‘Retail sales remained strong in the three months to August, with continued growth across all sectors. Food and household goods stores particularly benefitted from the warm weather when compared with last summer.’
The jump in sales was enough to send the Pound to US Dollar (GBP/USD) exchange rate back above the 1.32 threshold seen in yesterday’s session–an eight-week high.
Global Reach Chief Economist Eimear Daly commented:
‘Today’s retail sales release adds to evidence that the UK economy is performing well with strong consumer demand. The rates market is now pricing in a 5.1% probability of a rate hike at the November meeting. While economic fundamentals support a stronger pound, Brexit uncertainty will keep sterling crosses volatile near-term and Sterling strength limited.’
Other developments that may influence the Sterling exchange rate this afternoon could be the informal meeting of heads of states press conference where markets will be looking for any clues as to how Brexit negotiations are going. This could be especially pivotal given that headlines yesterday suggested that Theresa May would reject the latest EU Irish border proposal.
Euro and US Dollar (EUR, USD) Exchange Rate Forecasts
The Euro exchange rate might fluctuate on the latest Eurozone Consumer Confidence ecostat which is forecast to fall further into the negative from -1.9 to -2.0 in September. Meanwhile, US Dollar currency pairings might feel the impact of the August Existing Home Sales stat. The month of August is predicted to rise by 0.8%, after the previous month’s -0.7% contraction.
Update: US data surprised markets on Thursday afternoon when the Philadelphia Federal Reserve Business Outlook jumped above forecasts. The September number was expected to reach 18.0 from the former 11.9 but instead rocketed to 22.9. However, the ecostat wasn’t enough to stop the Dollar’s slide.
Later in the session things took a turn for the worse when US Existing Home Sales posted a disappointing result, coming in at a flat 0.0% in August, rather than the 0.5% forecast. Meanwhile, Eurozone Consumer Confidence also took a tumble, printing at -2.9 in September, a far cry from the -2.0 expected.
Yen Forecast: Japanese Inflation Set to Rise
Investors will also be watching how the safe-haven Japanese Yen (JPY) reacts to the latest Japanese Consumer Price Index (CPI). Economists currently expect an increase from 0.9% to 1.1% on the year in August. Stubbornly low inflation has been a problem for the Japanese economy for some time, and therefore a rise might offer some favour to the Yen.
The Pound to Japanese Yen (GBP/JPY) exchange rate is trending around 0.95% higher, at 148.97. The Pound to US Dollar (GBP/USD) exchange rate is currently in the region of 1.3281, around 1.08% stronger. The Pound to Euro (GBP/EUR) exchange rate is trading at 1.1288, after breaching the 1.13 threshold earlier in the session.