UK economic outlook remains weak
The UK CBI retail sales index recovered marginally in July but ultimately printed the fourth successive monthly decline in sales and retailers expect a further difficult month in August. Overall sentiment towards the UK economic outlook remained weak and markets were less confident that the Bank of England would hike interest rates by 0.5% next week. Fears over the Eurozone outlook underpinned Sterling against the Euro with a peak of near 1.1900, but was hampered by weaker global risk conditions as equities lost traction. The Pound found support below 1.2000 against the dollar but quickly recovered.
The EU announced that it had reached a deal on regulation for emergency gas cuts this winter, but there was renewed upward pressure on prices with the European contract hitting fresh 4-month highs. The surge in prices triggered further concerns surrounding the economic outlook which sapped Euro support.
BRC data recorded a 4.4% increase in shop prices in the year to June, the strongest reading since the series started in 2005, maintaining pressure for faster Bank of England rate hikes. Sterling strengthened to just above 1.2050 against the dollar this morning as the Euro defended the 1.1900 mark.
There are strong expectations that the Fed will increase interest rates by 0.75% at this evening’s policy meeting. Guidance and rhetoric from Fed Chair Powell will be crucial for exchange rate moves.