UK retail sales surprised with a 0.1% drop in October when a 0.2% increase was forecasted. The year-on-year retails sales increase held at 3.1% and core sales declined by 0.3% for the month. Sterling dipped lower as the data added to the trend of a weakening economy but overall reaction was muted and global risk appetite was more of a factor.
Nigel Farage stated that the Brexit Party would challenge all Labour seats which briefly pushed Sterling lower. The markets have priced in a majority Conservative government, underpinning the Pound and allowing an afternoon move towards 1.2880 on the Dollar and near 1.1695 on the Euro.
The only two currencies that saw much movement against the dollar were the Mexican Peso and the Japanese Yen yesterday. USD/MXN jumped to the highest level in over a month with the Bank of Mexico expected to cut interest rates today. The USD dropped to a one-week low against the Yen as US and China trade talks dragged on with little optimism emerging from the discussions.
Initial testimony from Federal Reserve (Fed) Chair Powell was unchanged from Wednesday. According to Powell, trade tensions had contributed to the manufacturing recession this year, but he does not expect spill-over effects into the broader economy. Fed vice-Chair Clarida stated that inflation expectations were at the low end of the range he considers consistent with the bank’s price stability mandate and there was no evidence that higher wages were putting upward pressure on inflation. New York Fed President Williams stated that monetary policy was in a good place and that the Fed will adjust policy if there is a material change in the outlook. St Louis President Bullard stated that it was time for the Fed to wait and see the impacts of rate cuts made so far this year. Overall rhetoric maintained strong expectations that rates would be held unchanged in the short term which supported the dollar.
ECB Council member Villeroy stated that it was reasonable to expect that short-term rates were close to bottoming out while also stating that German economic conditions warranted fiscal spending. According to the flash reading, Euro-zone GDP increased 0.2% for the third quarter with year-on-year growth at 1.2% and the Euro tested below 1.1000.
The Euro found support below 1.1000 yesterday but has since rallied to the 1.1020 mark as we start Friday’s European trading session. Firmer risk appetite limited a defensive Dollar demand and it retreated from 1-month highs as commodity currencies rallied.
Data to watch
13:30 - USD - Core Retail Sales
13:30 - USD - Retail sales
Posted in Daily Market News on Nov 15 2019