UK retail sales growth slows but still strong

Sterling is consolidating its gains right now; up to EUR 1.1790 and AUD 1.8880, for example. The reasons are the same as they have been for the last week; growing confidence in the efficacy of the vaccine rollout and steps being taken to reopen the UK’s travel and commerce links with the big wide world. We had further news that the UK economy is on the mend with last night’s retail sales report from the British Retail Consortium. 4.7% annualised growth in July is down a little from the June figure but still positive.

However, there is still reason to be cautious. The number of UK businesses that failed in Q2 was up 43% on the same period in 2020. 105,000 firms went under. The impending reduction of furlough support and just the sheer exhaustion of trying to manage through the hell of the last year clearly have taken their toll. There are fears of large-scale job losses and further business failures in the months ahead as the furlough scheme comes to a full stop and CBIL loans start to come due for repayment. So Sterling isn’t clear of the mire yet but the signs are generally positive and, with the unemployment rate so low, there will be opportunities for those who do find themselves out of work, so the unemployment rate may not be as badly affected as some fear.

USD still gaining on Fed tapering talk

The other big winner of the last few days has been the US Dollar. That payroll report and the comments from Fed members supporting tighter monetary policy have continued to boost the USD. It has pushed GBPUSD down to $1.3850 and EURUSD down to $1.1736. We are seeing similarly strong USD gains elsewhere too.

The opposite is true of Asian -Pacific currencies. The expansion of covid cases across the likes of Thailand, Singapore, Vietnam and Malaysia for example is as bad as it has ever been and governments in the area are trying desperately to get on top of the problem but it is affecting their economies and their currencies.

Broad based GBP gains

For example, the Sterling – Thai Baht rate is the highest it has been since 2016 at 46.3 and the same can be said of the GBPMYR rate which is 5.8585 this morning.

Also affected by that, by the price of gold and by a delay in the recovery from their own covid shocks, Australia’s Dollar is struggling too. The NAB business confidence index summed it up overnight. A minus 8 reading on the index is the first negative since October 2020 and it follows a bell curve of 9 positive months. Unsurprisingly, GBPAUD is up this morning; testing the AUD 1.89 level. We will get an Australian consumer sentiment index overnight tonight. We have to assume that will also disappoint, so AUD weakness is likely. AUD 1.90 could well be on the cards overnight. Whether it will stay there is another matter.

This morning brings ZEW business sentiment indices for Germany and the Eurozone. The euro is on the back foot, GBPEUR is trying to get above that €1.18 level and is certainly looking set to stay above 1.1760 (85p to the Euro) level. The EURUSD rate is down to $1.1730; a level it last found support at in March 2021. A break below there significantly changes the picture and further declines in that pair would be almost inevitable.

This afternoon brings US productivity statistics as well as the unit labour costs for Q2. All grist to the mill for the Fed which is seeing an ever more promising picture for the US recovery.

And that is it for today. Have a great Tuesday. Oh, and it is International Lion Day. IF you find one, give us a call. Run first…obviously, and then give us a call.

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