Sterling around a two week high after impressive retail sales data

The US Dollar remained stuck around a seven week low against its basket of currencies following a slightly more dovish than anticipated set of meeting minutes from the Federal Reserve on Wednesday evening.

Fed member William Dudley was a little more upbeat during a speech in New York yesterday. The New York Fed President claimed that the last two labour reports, which showed comfortably in excess of 200,000 jobs created in the US, have allayed fears of a slowdown and reinforced the view that US labour market conditions will continue to improve this year.

Meanwhile, a lack of negative surprises in the revised Eurozone inflation figures kept the Euro relatively well supported yesterday, with the single currency trading above the 1.13 level throughout the day. The Euro was also given a slight boost by the release of the meeting accounts from the European Central Bank’s July meeting, which showed that policymakers in the Eurozone did not discuss increasing its easing programme, despite Britain’s vote to leave the EU.

Today has all the makings of a relatively quiet end to the week, with no significant data releases in the major economies.

Major currencies in detail:

GBP

Sterling ended the London session 0.6% higher against the US Dollar on Thursday following a stellar set of retail sales figures.

Yesterday’s data allayed some fears surrounding third quarter GDP figures, which had been heavily expected to show the UK economy contracted following the Brexit vote, especially after the dire set of PMIs released last month.

However, retail sales are notoriously volatile and so it may be premature to read too much into it. Even still, much of the post-Brexit data has been remarkably resilient and could provide some scope for further gains in Sterling over the next few days.

Next Tuesday’s inflation report hearings from the Bank of England will be the next major event in the UK.

EUR

Still buoyed from Wednesday night’s Fed minutes, the single currency rose 0.2% against the US Dollar yesterday.

Headline inflation in the Euro-area remained unrevised in July from previous estimates. Consumer prices grew by a fairly dismal 0.2% in the year to July, with core inflation also unchanged at 0.9%. Although modest, the data shows a slight improvement from earlier in the year, when price growth negative for three out of five months.

Despite such weak inflation, the ECB showed no rush to increase stimulus measures further in their meeting accounts. We think the central bank will wait and assess the next few month’s data before deciding on the next policy move. Any negative surprises in the PMI surveys or inflation could force the ECB’s hand before the end of the year.

USD

The Dollar slipped towards an eight week low against its major peers yesterday, still under pressure from a slightly dovish set of meeting minutes from the Federal Reserve.

Jobless claims in the US remained very strong last week, suggesting that the US labour market is ready for a second post-financial crisis interest rate hike. Claims fell by 4,000 to 262,000, extending its record low below the 300,000 level.

The Philadelphia Fed manufacturing survey also improved on previous, allaying some concerns about the health of the sector. The much scrutinised survey increased from -2.9 in July to 2 this month, in line with expectations.

There are no major economic releases in the US today. US Dollar traders will now await Janet Yellen’s appearance at the Jackson Hole conference later in the month as the next main event in the US economy.

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