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US retail sales grew 0.7% in March
Thursday was a strange old day for currency markets, as each of the pound, the euro and the US dollar benefitted from their own set of tailwinds.
A clearer trend emerged this morning, as sterling fell by 0.3% and 0.2% against the US dollar and the euro respectively.
This came after UK retail sales dropped by 3.2% in December, well below forecasts of a 0.3% decrease and down from November’s 1.4% increase. The tumble was most notable at department stores (-7.1%) and other non-food stores (-4.5%) as consumers looked to spread the cost of their Christmas over multiple months.
Most commentators in the UK continue to see November’s inflation statistics as an aberration rather than a trend. So, while sterling advanced slightly this week on the news that the headline figure had climbed to 4%, there was a feeling that previously rampant price increases were under control.
The US dollar was boosted by yet another example of economic resilience. Housebuilding permits rose by a seasonally adjusted 1.9% last month, while initial jobless claims fell to their lowest weekly level since September 2022.
Both the Nasdaq and the S&P 500 stock indexes rose on the news. Over in Europe, the Stoxx Europe 600, the FTSE 100 and Germany’s DAXX also rebounded after a poor showing on Wednesday.
The European Central Bank (ECB) is starting to get worried about interest rate bets. In the minutes from its last meeting, policymakers agreed that June would likely be the earliest it would cut lending rates, and bankers agreed to publicly push back against risky market speculation.
The euro duly strengthened when the minutes were released. There was an absence of punchy economic data yesterday, but despite markets hunting for breadcrumbs there was little to separate major currency pairs yesterday.
The Natwest Sustainable Business Tracker for November has found that UK SME output rose by its fastest level since May. Even better, the tracker said that SME sentiment was now at its highest level in almost two years.
Port Talbot steelworks owner Tata has rejected a trade union offer that would potentially save nearly 3,000 jobs. Tata Steel plans to shut Port Talbot’s blast furnaces down while the company builds electric arc furnaces, which make steel from recycled scrap – a greener and cheaper process.
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GBP: Heads held high
Sterling dipped against the euro and the US dollar in early morning trading, having made small gains in yesterday’s session.
The big news this week was that UK inflation increased to 4% in November, up from October’s 3.9%. Despite this, markets have been stable and the consensus view is that long-term inflationary forces have abated, assuming no further geopolitical banana skins are thrown.
GBP/USD: the past year
EUR: Lagarde calls for calm
The euro bounced around but ended yesterday little changed against its main rivals.
ECB president Christine Lagarde has warned markets to call their jets on interest rate expectations. An overexuberance in markets could lead to a return of inflationary forces, she warned this week.
USD: Still going strong
The US dollar lost 0.15% against the pound while trading blows with the euro on Thursday.
The US economy seems immune to the medicine it is being fed by the Federal Reserve. Increased lending costs were supposed to result in lower economic output, but yesterday’s housebuilding permits and initial jobless claims showed there was no let-up for the world’s largest economy.
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