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Retail sales were hit by July's wet weather (Jason Batterham / Shutterstock.com)
Sterling has a strongly positive day yesterday, climbing close to its highest position against the euro since last August.
The gains were on the back of Wednesday’s inflation data that showed a good enough fall – from 7.9% to 6.8% – that the government felt able to claim the credit, while the markets were more interested in the less volatile core inflation, which was still rising. Some of those ‘core’ prices were due to rocketing hotel and air fares, as people make up for lost holidays in the Covid era.
Still, with no interest rate decision for another month, there is plenty of other data that will influence the Bank of England on interest rates before then.
One of those hit this morning, with retail sales falling by 1.2% in July, to an annualised decline of 3.2%. The wet weather got much of the blame, alongside inflation, with food sales shrinking by 2.6%.
Other data of interest yesterday was the eurozone’s balance of trade, which shot upwards from minus €0.3bn the previous period to plus €23bn in June – the highest level for two years – as imports from Russia fell.
Speaking of Russia, the fall in the rouble was reversed, as the Russian government was reported to be introducing capital controls.
China’s central bank has also stepped in to support its currency, the renminbi. There have been increasing worries about the Chinese economy, with exports weakening along with consumer confidence. Yesterday the US dollar reached its highest rate against CNY since around 2008.
Chinese property companies are in particular trouble, reportedly struggling to find the money to complete developments. Yesterday the Chinese property giant Evergrande filed for bankruptcy in the US, and another, Country Garden, said it could have lost $7.6bn in the past six months.
In domestic property news, renting costs in the UK have hit their highest ever level, rising by 5.3% in the year to July and with 20 enquiries for each available property, according to research from Rightmove. Could there be a change in demand down the line though? The UK’s birthrate has fallen to its lowest level since 2002, with just over 600,000 new babies last year.
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GBP: Pound stays ahead of US dollar and euro
Even with the 0.25% drop this morning following retail sales data, GBP/EUR is still well over 1% up on the week and not far from its highest level for a year.
While not quite at those heights against the US dollar, sterling remains slightly ahead of a generally resurgent dollar over the week.
We’re approaching a quiet period for UK data, with Wednesday’s flash reading for PMI the last noteworthy release for a week or two.
GBP/USD past year
EUR: Losses to USD and GBP but more successful elsewhere
It’s been a mixed period for the single currency, with losses of over 1% against the pound and US dollar but large gains against most other major currencies, most notably the Australian and New Zealand dollars and Scandinavian currencies.
It’s been a relatively quiet week for data, with an improvement in both German and eurozone economic sentiment the most positive news.
We will shortly hear the final reading for the eurozone’s inflation data, which is expected to have fallen marginally to 5.3% front 5.5%, but with core inflation remaining stubbornly stable at 5.5%.
Then there’s not a great deal to get excited about until PMI on Wednesday.
USD: 15-year high against Chinese renminbi
While the overall picture was more mixed for the US dollar yesterday, USD/CNY hit 7.316, it’s highest level since before the global financial crisis.
Most of that change actually comes from problems on the Chinese side of the equation, but the dollar has been on the rise, gaining around 3% against the euro and Canadian dollar over the past month, and 6% against the Australian dollar.
Yesterday’s jobs data was mixed, with initial jobless claims falling from 250,000 to 239,000, but continuing jobless claims rising to 1.716 million.
US data tends to go a little quiet mid-month, and there’s not much to move the market until the very end of August. However, coming up next weekend is the Jackson Hole Symposium, where bankers will be making potentially influential speeches on 26th August.
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