Sterling Shrugs off another local lockdown
Sterling held its own despite no significant economic data leaving global trends to dominate and a notable slide in risk appetite. Despite a sharp decline in European equities and underlying lack of UK yield support the Pound actually gained ground with month-end position adjustment the likely cause. Sterling peaked near 1.3050 on the Dollar, making daily gains for 10 days in a row, and pushing near to 1.1086 on the Euro before a modest correction.
The news of a limited lockdown in pockets of Northern England had little currency impact. The CBI also warned that companies would need more time to prepare for a “no trade deal Brexit” and 75% of firms surveyed were concerned over the risk of a further economic shock. Sterling maintained a strong tone and traded above 1.3130 as Dollar suffered further selling, whilst the Euro advanced to the 1.1035 area.
Month end position adjustment will mean today’s trading could be erratic and volatile.
According to the advance reading, US second-quarter GDP contracted at an annualised rate of 32.9% after a 5.0% decline for the first quarter. This was the sharpest quarterly contraction on record by a substantial margin, although slightly better than consensus forecasts. There was a sharp decline in consumer spending, especially on services, while investment slumped on the quarter. There was, however, a big boost to Federal government spending. Prices declined 2.1% on the quarter, maintaining underlying disinflation pressures which will encourage the Federal Reserve to maintain a very expansionary policy.
Initial jobless claims increased to 1.43mn in the latest week from a revised 1.42mn although this was slightly below market expectations. Continuing claims also increased to17.02mn from 16.15mn previously, maintaining concerns that the economy was slowing. Overall, there were fresh reservations over the US recovery profile.
The dollar lost ground following the data with the Euro and GBP. Commodity currencies, however, were unable to make gains as risk appetite deteriorated. After a brief pause, the dollar slumped later in New York with the Euro at 26-month highs near 1.1900.
The latest German labour-market data recorded an unemployment decline of 18,000 for July following a 68,000 increase the previous month and much stronger than consensus forecasts of a further 42,000 increase.
German GDP, however, registered a contraction of 10.1% for the second quarter following a first-quarter decline of 2.0% and compared with consensus forecasts of a 9.0% contraction. Markets continued to monitor regional coronavirus developments.
Data to watch
7am German Retail sales
10am Eur Consumer Price Index (preliminary) QoQ, YoY June, Core YoY June, and Q2 YoY.
1.30pm US Personal income, Core Personal Consumption Expenditure, Personal spending
1.30pm Canada GDP May
2.45pm US Chicago PMI
3pm US Michigan Consumer Sentiment
CHF – Swiss National Day bank holiday