Pound holds gains despite economic data weakening

Retail sales slumped in April

The day after the big announcement of the General Election (and inflation falling to manageable levels), the pound held onto most the gains it made on Wednesday. GBP/EUR is close to 2% stronger than this time last year, 1% better than last month and 0.7% better than last week. The numbers for GBP/USD are generally even more impressive.

This is despite decidedly mixed signals on the demand side of the UK economy this morning. While the GfK Consumer Confidence reading was the best since December 2021, Retail Sales for the UK dropped by 2.3% in the year to April, considerably worse than expectations.

Yesterday’s Purchasing Managers Index (PMI) showed a divergence in business leaders’ optimism between countries. The UK’s service sector disappointed, showing a drop from 55 to 52.9. While this is nowhere near the 50 mark below which denotes overall pessimism, it was still poorer than expected. On the other hand, Germany’s manufacturing sector improved to 45.4 and the USA’s services PMI hit 54.8.

There is still almost a month to the next interest rate decision and the economic picture continues to be muddied.

Anyone looking for clear blue water between the two main challengers for the UK General Election may struggle, but a report in the FT makes it clear that business chief executives are looking for a clear victor, whichever it is, followed by decisive, competent action to improve infrastructure and speed up the planning process. Some mentioned that closer ties with Europe would be helpful.

Several UK bills going through parliament have been abandoned in the rush to the snap election. These include the Renters (Reform) Bill which would have banned no-fault evictions. However, another bill, reforming leaseholds, could still become law.

Elsewhere in the world, the release of the minutes of the Federal Reserve’s interest rate decision has led to volatility around USD, with markets reacting positively, initially, to the Fed’s hawkish concerns about inflation rising again, along with positive PMI data.

In Europe, rapidly rising pay in Germany, at 6.2% the biggest annual rises in a decade, has put the European Central Banks’s expected interest-rate cutting programme in doubt too.

The path to lower interest rates remains unclear in every major trading bloc.

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GBP: Little movement the day after

Sterling saw some of the previous day’s gains pegged back yesterday, but it nevertheless reaches the last day of the week around three-quarters of a percent up on the euro and fractionally up on the US dollar.

After the excitement of this week there is virtually nothing on the data docket next week, which starts anyway with a Bank Holiday.

GBP/USD past year

EUR: Positivity grows around Germany economy

A mixed week for the euro, which strengthened by 0.5% against the US dollar and more than 1% against the yen. The single currency was supported by generally upbeat reports on eurozone economy, but high German wage rises are putting interest rate cuts in doubt.

Monday starts with the Ifo Business Climate report for Germany and continues into Wednesday with Germany’s GfK Consumer Confidence reading. Will they continue the good news on Europe’s economic engine room?

EUR/USD past year

USD: Dollar on upswing as PMI impresses

The dials were all green for the US dollar yesterday, with growth of 0.25% to 0.50% against major rivals following excellent PMI readings that showed the US service economy in its rudest health since for at least a year, and Federal Reserve jitters on inflation.

Will that be reflected in Gross Domestic Product (GDP) next week? We’ll have to wait until Wednesday to see.

USD/GBP past year

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