IFX Market Report: Friday 16th August 2019

The pound enjoyed another day of gains yesterday as better-than-expected UK retail sales completed a trio of positive data releases that raised hopes that the UK economy is in better shape than experts has previously thought.

Retail sales excluding fuel sales rose 0.2% in July, markets had been anticipating a fall of 0.2%. This took the annual rate to 2.9%, comfortably above the 2.3% estimate. This was helped a healthy rise of 6.9% on online spending.

This follows encouraging jobs data on Tuesday which showed employment had hit an all-time high and wage growth had hit an 11-year high. Higher-than-expected inflation on Wednesday, which ordinarily would force the Bank of England to look at raising interest rates where most analysts have been predicting a rate cut by the end of 2019/beginning of 2020.

With the UK economy looking slightly more healthy than expected and a challenge by Labour leader Jeremy Corbyn to bring down Prime Minister Boris Johnson in an attempt to block a no-deal Brexit the pound looks set to post its biggest weekly rise against the euro and US dollar in 2 months.

GBPUSD opened at 1.2068 and rose throughout the morning and early afternoon to a 1-week high of 1.2138. The pound fell slightly later in the session but closed 0.4% up on the day at 1.2117.

The moves in GBPEUR were slightly more pronounced, the pound rose unchallenged from an early morning low of 1.0809 by over 1.0% to hit a high of 1.0918 as the London session finished.

The US dollar recovered from early weakness as buoyant US retail sales data eased fears the US economy was heading for a recession. Sales surged by 0.7% in July, up on June’s 0.4% rise and higher than the 0.3% estimate.

Investors are concerned the global economy is facing a slowdown and the US is heading towards recession following the first inversion of the bond yield curve in 12 years. This last happened ahead of the great financial crisis of 2007/08. The dollar index rose to a high of 98.22 around 1% higher than the 3-week low set on August 9th as investors began to unwind recent safe haven purchases, particularly the Japanese yen which surged on Wednesday against the dollar.

EURUSD opened at 1.1149 and after a steady morning fell for most of the afternoon, eventually dropping to a low of 1.1098.

Elsewhere, the Norwegian krone fell to an 18-year low after the Norges Bank said it was uncertain now about future monetary policy, raising doubts they wouldn't increase interest rates in 2019. They had previously outlined plans to increase rates throughout 2019, whereas most central banks around the world are winding them in.

The Australian dollar strengthened follow a massive rise of 41,000 new jobs in July, markets had expecting employment to rise by 14,000 following June’s disappointing 500 rise.

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