Positive Data Adds To Sterling Strength
The GfK consumer confidence index was unchanged at -27 for August and weaker than the consensus forecast of -25. UK retail sales increased 3.6% for July, above consensus forecasts of 2.0% with a 1.4% annual gain. The July government borrowing requirement declined to £26.7bn from £29.5bn, but the deficit surged to over £150bn for the first four months of fiscal 2020/21.
Sterling dipped lower in early Europe yesterday, but was notably resilient during the day and posted strong gains at the close. The UK currency recovered from lows below 1.3100 against the Dollar to trade around the 1.3170 at the European close whilst against the Euro, managing to retest the 1.1110 level. Expectations of extremely accommodative monetary policies by the ECB and Federal Reserve provided an element of support to the UK currency. Sterling again pushed higher late in US trading and strengthened against the Dollar to 1.3240 and 1.1150 against the Euro in early Europe this morning.
The latest business confidence data will be scrutinised closely today for evidence of the UK recovery profile and international comparison. Markets will also be monitoring trade rhetoric as the latest UK/EU negotiating round is completed.
US jobless claims increased to 1.11mn in the latest week from a revised 0.97mn the previous week and above consensus forecasts of 0.93mn. Continuing claims declined to 14.84mn from 15.48mn the previous week and below market expectations of 15.00mn. The data recorded weekly increases in pandemic unemployment assistance claims on the week and there was also an increase in continuing claims on this basis.
The Philadelphia Fed manufacturing index declined to 17.2 from 24.1 the previous month and below consensus forecasts of 21.0. There was a small slowdown in new orders growth, but with a small decline in unfilled orders. There was a small increase in employees and workweek for the latest monthly data. Companies were slightly more confident over the six-month outlook with expectations of solid increases in employment and prices.
The Euro remained on the defensive on Thursday as the ECB minutes from July’s meeting were released with indications that some members were unwilling to extend the PEPP bond-purchase programme, although the council overall expected that the full envelope of potential would be used. The ECB also noted that market developments might be based on overly optimistic expectations about the recovery package and vaccine developments. The council expects more clarity about the inflation outlook in September and, overall, there was a high degree of uncertainty over the outlook with a limited Euro impact.
The Euro found support around the 1.1800 and pushed up towards the 1.1850 area at the European close at the US Dollar continues to fail in any kind of support.
On the docket today, the latest batch of Euro-zone PMI business confidence data is due for release and as of writing, the Euro currently trades around the 1.1865 mark against its US counterpart.
Data to watch
08:15 – EUR – French Flash Services PMI
08:15 – EUR – French Flash Manufacturing PMI
08:30 – EUR – German Flash Manufacturing PMI
08:30 – EUR – German Flash Services PMI
09:00 – EUR – Flash Services PMI
09:00 – EUR – Flash Manufacturing PMI
09:30 – GBP – Flash Services PMI
09:30 – GBP – Flash Manufacturing PMI
14:45 – USD – Flash Manufacturing PMI