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US retail figures gave the US dollar space to advance yesterday. Editorial credit: Heidi Besen, via Shutterstock.
The US dollar rocketed up against the euro and the pound on Thursday afternoon, as US retail sales recorded their biggest monthly increase since January 2023.
July’s data showed sales at retail and commercial outlets had increased by a full 1% from June. GBP/USD and EUR/USD lost half a cent on the news but would later recover some of those losses. A better day for GBP/EUR saw the pound steadily approach its highest level this week.
The retail therapy didn’t stop there. This morning, the UK reported its own retail sales numbers had jumped by 0.5% in July. While in line with forecasts, that was particularly heartening after the woeful performance in June that gave sterling a pre-weekend puncture a month ago.
So, why all the fuss over the tills? There’s no question that a 1% increase in one month is an overwhelmingly strong performance. However, the main reason for the US dollar’s surge was that it simultaneously eased fears of a recession and lowered the odds that the Federal Reserve would announce a bumper rate cut at its next meeting.
While it was just a theory, fresh jobs data could be wheeled out in support of it. July’s 227k initial claims was almost 10,000 below forecasts, indicating that whatever weakness existed in the American labour market, it was not immediately translating to a recession.
US property hunters will have building permits and housing data to look over this afternoon. For those with an eye on the UK, the Office for National Statistics (ONS) announced this week that house prices had increased by 2.7% in the twelve months to June 2024. Rents for private housing meanwhile increased at an annualised 8.6%.
True to form, the mood in markets this week has pivoted from mopey existentialism to giddy excitement in just a few short days. Talk of a ‘soft landing’ from economic disaster has spread from the US to now cover Europe and the UK and risk appetite has increased.
In our experience, it’s easy to be fooled by this. The highs and lows of financial markets are great, but August is always a bit of an outlier. We’ve had crisis and catharsis already this month — a few isolated data points do not shake our belief that a sensible, risk-averse approach to your budget is always the best approach.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Services doing the heavy lifting
The UK economy grew by 0.6% between April and May, propelled in large part by its dominant services sector. More detail on that arrives next week with S&P’s dedicated sector report.
GBP/USD: the past year
EUR: Finding resistance
Rival currencies weren’t going to let the euro have its own way for too long. The euro fell against the pound and the US dollar yesterday, as economic data pointed to economic resilience in those economies.
GBP/EUR: the past year
USD: The American auto machine
July’s retail sales figures could not have come at a better time for the US dollar. As Americans celebrated Independence Day, sales at motor vehicle and parts dealers increased by almost 4% – a fillip for Kamala Harris, perhaps, as she looks to win votes in the auto stronghold of Michigan.
EUR/USD: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 7898 0500 or your Private Client Account Manager on 020 7898 0541.
