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Warm weather in September hit high street sales (John Corry / Shutterstock.com)
Yesterday was an interesting day for currencies, with sharp changes in direction for the pound, euro and US dollar, but this morning’s retail and consumer confidence data has sent sterling to its weakest for five months against the euro.
A quick mention that we have just published our brand-new Quarterly Forecast. Download it here and see what the market predicts for the pound, euro and dollar.
The big story for sterling yesterday was a fall of around 0.5% against the euro in the early part of the day, surpassing its recent low in late September, all the way to its weakest since May. GBP/EUR is currently 1% down on last Friday morning, with GBP/USD down 0.8%.
For the US dollar, there was confusion in the markets when the Chair of the US Federal Reserve Jerome Powell pointed out the many and various factors that would affect interest rate decisions now. He said: “A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little.” Overall it was taken to suggest no rate rise at the FOMC’s next decision on 1st November.
Meanwhile, a leading UK thinktank, the Resolution Foundation, said that a target of 3% inflation should be low enough (it is currently 2%), and that the Bank of England should be allowed to introduce negative interest rates if required. They were backed up on the 3% element by the Geneva-based United Nations Conference on Trade and Development, which said something similar.
In the City, the FTSE fell to its lowest level for a year, and this morning has fallen further, driven by disappointing data from the high street. UK retail sales fell by 0.9% in September – a much worse performance than expected – as unseasonably warm weather hit clothing sales. Overnight, the GfK consumer confidence index was also considerably below expectations, at -30.
In New York the district attorney has sued three crypto firms in a $1 billion fraud case, accusing them of misleading investors. Also in the USA, but switching to politics, Donald Trump’s former lawyer Sidney Powell has pleaded guilty to conspiring to overturn the 2020 election results in the state of Georgia. This potentially opens the door to her testifying against Trump when his own case there starts.
In UK politics, Labour won two by-elections last night, including the biggest by-election win in British history, where a majority of nearly 25,000 was reversed in Boris Johnson-ally Nadine Dorries’ former seat.
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GBP: Data deals poor hand to sterling
Sterling’s fortunes diverged yesterday, crashing to a five-month low against the euro, but strengthening overall against the US dollar after a topsy-turvy day.
It’s been all downhill this morning, however, following two new data releases. GfK Consumer Confidence dropped to -30, its lowest level since March, and far worse than expectations. Retail sales also fell, by 0.9% in September, with non-food sales particularly hit by warmer weather.
Turning to next week, the last of a long string of important economic reports from the Office for National Statistics comes out on Tuesday, with unemployment. On the same day there will be flash readings for the Purchasing Managers’ Index (PMI).
GBP/USD past year
EUR: Euro strengthens
It was a highly positive day for the euro, with gains of between 0.4% and 0.8% against major rivals.
Reasons for that strength include a stronger risk appetite among investors. There was very little data for the markets to chew on and that goes for today too. However, on Monday we’ll get a reading for eurozone consumer confidence and on Tuesday a mass of readings for the PMI.
USD: Powell equivocation = no rate hike?
The dollar went in all sorts of directions yesterday as comments from Federal Reserve chair Jerome Powell and other policymakers on the Fed’s interest-rate-setting committee the FOMC were considered.
From tomorrow the members of the FOMC go into a blackout period leading up to their interest rate decision on 1st November.
Against most currencies the dollar had returned to its position at the start of the day, but remained weaker against the euro.
Also yesterday, ‘initial jobless claims’ were better than expected, with 198,000 new claims when 212,000 had been expected.
Next week starts quietly, and there won’t be much of interest until GDP on Thursday.
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