The Pound fell against the Euro yesterday after a report from the Office of National Statistics showed that UK retail sales rose by the weakest annual rate in 17 months, strengthening the case for a reduction in borrowing costs.
The UK currency staged a brief rally against the majors in the aftermath of the report as sales actually increased unexpectedly on the month in July but the gain was the smallest since February 2006 and provides the latest indication that the economy is edging closer towards a recession.
Sales increased just 0.8% last month after falling 4.3% in June, which was the biggest monthly drop since records began in 1986, and the report coincides with recent comments from the BoE Governor, Mervyn King, who admitted that the UK economy faces a “difficult and painful” adjustment in the months ahead.
The negative sentiment surrounding the outlook for UK economic growth has seen the Pound decline 7% against the Dollar in little over a month but the unexpected increase in crude oil prices brought the rate back above $1.8700 by the close last night.
The focus this morning will fall on the second estimate for gross domestic product in the second quarter and the index is expected to show that growth forecasts were revised lower in the three months through June.
Oil for delivery in October rose $5.62 in New York to settle at £121.18 a barrel last night, the biggest intraday move since June 6th after news broke of a missile shield agreement between the U.S and Poland stoked concerns that Russia may cut supply.
The Dollar subsequently declined by the most against the Euro since June and also registered sharp losses versus a basket of currencies, including the Pound, amid speculation that further losses in the U.S financial sector and an increase in oil prices will prolong the U.S slowdown.
The Dollar fell 1% against the Euro on session yesterday as a separate report showed that the Conference Board’s index of leading economic indicators fell 0.7% in July and the tone of report shows that the economy will continue to struggle in the second half of the year.
The worst slump in housing for almost 20-years is showing few signs of abating while the worsening labour market conditions has seen jobless claims rise and a separate report yesterday showed that manufacturing in the Philadelphia region shrank for a ninth straight month.
Data Released 22nd August
U.K 09:30 Gross Domestic Product (Q2 2nd estimate)
EU 09:00 Current Account (June)
EU 10:00 Industrial Orders (June)
written by Adam Solomon
Related posts:
- The Pound declines against the Euro as UK Retail Sales fall for the first time in six months
- The Pound declines as UK retail sales continues to fall to the lowest level in nine months
- The Pound continues to decline against the majors as UK retail sales fall for the first time in 9-months
- The Pound rises against the majors overnight as retail sales accelerates to the fastest pace in six months
- The Pound declines against the Dollar but rises to a two week high versus the Euro despite a 0.4% drop in retail sales
