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Pound rebounds

Pound rebounds

GBP
The latest UK consumer lending data was weaker than expected with a net increase of £4.8bn for July from £5.5bn the previous month with consumer credit growth at the slowest pace for 15 months. The data maintained expectations of a weaker trend in consumer spending amid Bank of England unease surrounding trends.

Following the speech by the Japanese PM Shinzo Abe at a joint conference, Theresa May spoke about a new UK-Japan bilateral relationship. May revealed an ambitious programme of working with Japan to improve bilateral relations and said that Britain will stand with Japan in defending the international rules-based system.

The third round of Brexit talks meant negotiators on both sides were barely able to conceal their frustration. We await the outcome of the October European Council, where EU leaders will decide in October whether “sufficient progress” has been made for trade negotiations to start. European Commission President Jean-Claude Juncker has voiced his dissatisfaction with Britain for failing to prepare for Brexit talks.

Although there were further warnings over tough Brexit negotiations and EU officials played down the potential for a breakthrough in talks this week.Sterling was resilient during the day and went higher against the Euro up to 1.0840. The UK currency found support around the 1.2900 level against the Dollar.

Month-end position adjustment is likely to be an important market factor on Thursday with the potential for choppy trading conditions.

USD

Wednesday’s ADP National Employment Report printed strongly and GDP data provided an additional boost to the US Dollar. The release comes two days ahead of the government’s closely-watched nonfarm payrolls report.

The Private payrolls grew by 237,000 in August, ahead of the 185,000 that economists expected, and services again dominated the numbers with a gain of 204,000. The month saw notable gains in construction and manufacturing.

US revised second-quarter GDP up 3.0% vs the 2.7% rise expected. There are signs that the momentum was sustained at the start of the third quarter. Gross domestic product increased at a 3.0% annual rate in the April-June period, the Commerce Department said.

Nonfarm payroll is the one to watch, due to be released tomorrow at 8:30am.

EUR

The Eurozone economic confidence index rose to 111.9 for August from 111.3 previously, showing the strongest reading for 10 years. This maintained optimism yesterday for the outlook of the Euro as firm sentiment grasps the underlying growth of the currency. There was, however, pressure for a Euro correction with some speculation that the currency, with recent success, was overbought and that the European Central Bank (ECB) could look to talk down the Euro at next week’s council meeting.

Yesterday saw stronger-than-expected inflation data from both Spain and Germany with forecasts lifting the Eurozone number to 1.5% y/y from 1.4% y/y expected previously. German data suggests the anticipated uptick from 1.3% y/y in July will be mainly driven by higher annual rates for energy and food prices.

With the surge of the Euro at the beginning of the week, the market is starting to recalculate its gains as the single currency loses out against its rivals. Against the Dollar, the currency pair fell from 1.1959 at the start of play to 1.1898 at the close whilst the Pound made gains rising as far as 1.0885.

Data to Watch:
7:00am German Retail Sales, MoM & YoY July
9:00am German Unemployment Rate & Change August
10:00am Euro Unemployment Rate July. Consumer Price Index and Core CPI August
12:30pm Personal Consumption Expenditure, Core PCE, Personal Income & Spending. Initial Jobless Claims and Continuing Jobless Claims.
2:45pm Chicago PMI August
3:00pm Pending Home Sales MoM & YoY July

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