we’ll see now a new weekly currency forecast.
Last week’s highlights
•Pound falls to new YTD low vs euro
•Dollar falls on disappointing Retail Sales, PPI
•UK trade deficit widens in June
This week’s highlights
•UK July CPI, Claimant Count Change, Retail Sales
•Fed, ECB meeting minutes
The pound fell 1.07% against the dollar and 1.75% against the euro last week, remaining under pressure after the Bank of England expanded its QE programme and cut interest rates to 0.25% the previous week. Sterling fell to a low around 1.1555 against the euro, its lowest levels since 2013, and to 1.2911 against the dollar, still above its YTD low around 1.2789. Trade balance and Manufacturing Production data for June, out Tuesday, disappointed, adding to the pressure on the pound. The trade deficit in goods widened more than expected to £12.5B, from May’s upwardly revised £11.5B deficit. NIESR estimated that the economy grew a slower 0.3% in the three months through July, contracting 0.2% in July itself.
The calendar picks up this week. July data will be particularly closely watched as markets seek a better understanding of the referendum’s initial impact. July releases include CPI, out Tuesday, Claimant Count Change, out Wednesday, and Retail Sales, out Thursday. The releases likely pose an additional risk to the pound’s strength this week, but any surprises to the upside could offer the pound some relief. Wednesday’s Average Earnings and Unemployment Rate figures are for the three months through June, so may have a more muted impact, but gains in wages could still offer the pound some relief. Public Sector Net Borrowing, out Friday, is expected to indicate a surplus.
Last week’s economic calendar was relatively quiet. French Industrial Production fell 0.8% on a month-on-month basis but had relatively limited impact on the euro, which strengthened ahead of a German 10-year bond auction. Of particular interest were GDP figures. Preliminary German GDP came in above expectations at 0.4%, while the second estimate of Q2 Eurozone GDP was unchanged at 0.3% quarter-on-quarter and 1.6% compared to a year prior. Industrial Production in the Eurozone picked up 0.6%, following the previous month’s 1.2% drop.
Economic Sentiment and Final CPI figures will be in focus this week. German Economic Sentiment is expected to pick up from -6.8 to 2.0, while sentiment in the Eurozone is expected to pick up from -14.7 to -6.3. A reading below 0 indicates pessimism. The gains, particularly in the German index could offer the euro some support. Final CPI figures are expected to confirm that headline inflation rose to 0.2% and core inflation to 0.9% in July. Markets will also keep an eye on the Eurozone’s June Trade Balance and Current Account data. The ECB’s Monetary Policy Meeting Accounts will be closely watched for any additional forward guidance.
Under-forecast data on Friday weakened the dollar 0.5% against the pound and 0.4% against the euro, pushing it above 1.3000 and 1.1200, before the dollar pared losses. Retail Sales were flat in July at 0.0%, while Core Retail Sales fell 0.3%. The Producer Price Index fell on a month-on-month basis, slowing to 0.7% year-on-year, while Core PPI was also down. Consumer Sentiment rose less than expected in August. The disappointing figures on Friday weighed on expectations for a Fed rate increase this year; expectations had risen again following stronger-than-expected July labour market data the previous week. Other key releases included a dip in weekly Unemployment Claims from 267K to 266K, a gain of 0.1% in Import Prices month-on-month, and an unexpected drop of 0.5% in Nonfarm Productivity. Also of note, the Dow Jones Industrial Average, S&P 500, and Nasdaq all rose to record highs on Thursday.
Data this week will continue to be closely watched as markets await signals as to the Fed’s thinking at the Jackson Hole Symposium next week. CPI data out Tuesday may provide little obvious impetus for the Fed to raise interest rates, while Building Permits, Housing Starts, and Industrial Production data will continue to sketch out the strength of the domestic economy. Weekly Unemployment Claims will likely have relatively limited impact barring any surprises in either direction but will serve as another indication of the labour market’s strength. Fed Members Bullard and Dudley are among the week’s speakers. Wednesday’s Fed meeting minutes will be closely watched for any additional guidance following last month’s decision to hold interest rates.
Regards All Community.