Sterling enjoyed a day of gains across the board yesterday as markets reacted positively to a sanguine UK retail sales report.
With British wage growth lagging inflation, not many analysts were surprised when March’s retail sales index printed negatively at -1.2%. Due to the warm weather and the Easter Holiday, expectations for April were a little better. Traders had pencilled in a mild 1.0% rebound. However, the actual figure was twice that at 2.0%, which drove the annualised retail indicator up from 2.8% to 4.5%.
The report detailed how non-food spending led the way, with clothing, household and garden stores benefitting from the warmer weather.
Strangely, Sterling tanked during the evening with no clear stimulant. The move was largely seen as a ‘flash crash’, perhaps caused by a string of automatic stop-loss orders being triggered while market volatility was lower after the London close.
The Pound to Euro exchange rate rallied by over half a cent yesterday morning as markets reacted strongly to news of the UK’s better-than-anticipated retail sales print.
The British economy has surprised market expectations to the upside since the Brexit vote, proving remarkably resilient. The latest concern is that rising import costs, as a consequence of the Pound’s post-Brexit depreciation, will weigh on economic growth as wages fail to keep up with the pace of inflation. Indeed, real wages recently fell back into negative territory. However, sturdy retail sector reports like yesterday’s provide hope that Britain’s sanguine performances could continue. In theory, this could raise the prospect of a potential rate hike from the Bank of England, which explains why Sterling soared across the board yesterday morning.
The Pound remained up on the day versus the Euro, but the evening’s ‘flash crash’ certainly took the shine off the morning’s strong gains.
The Pound stormed through psychological resistance against the US Dollar yesterday morning to touch levels not seen since September 2016. The surprisingly steep rise in UK retail sales volumes was the catalyst for the move, while US sentiment remained soft on fears that President Donald Trump’s FBI/Russian scandal could prevent him passing his vaunted tax reform and infrastructure spending plans anytime soon. Although we are a long way off an impeachment at this stage, the very mention of the word provided enough stimuli to persuade some traders to pull out of the ‘Greenback’ earlier in the week.
Later in the day Sterling was forced to give back its gains, plummeting -100 pips in around 12 seconds with no clear motive. Most analysts labelled the move a ‘flash crash’
Data yesterday showed that US initial jobless claims slowed from 236,000 to 232,000 last week, while the Philadelphia Fed manufacturing index jumped form 22.0 to 38.8. The data failed to impact GBP/USD, which was stuck in between the morning’s UK retail report and the evening’s ‘flash crash’.
The Pound to Canadian Dollar exchange rate strengthened a cent and a half to a one-week high yesterday morning as upbeat UK data rekindled Bank of England rate hike bets. The ‘Loonie’, on the other hand, suffered from a -1% pullback in the value of Canada’s most prized asset, crude oil. GBP/CAD struggled to hold onto its 150-pip gains though, and by the end of the day the pair had settled back where it began due to the evening’s weird ‘flash crash’.
On a topsy-turvy day, when Australian labour data and UK retail sales both impressed, GBP/AUD ultimately ended very close to where it began.
First the ‘Aussie’ rallied on news that 37,400 jobs were created in April, enough to drag the unemployment rate down unexpectedly form 5.9% to 5.7%. Then Sterling rose rapidly on the morning’s sturdy UK retail report. Finally, the Pound’s gains were erased as what looked to be a ‘flash crash’ dragged GBP/AUD back down.
The Pound held onto gains of around 70 pips versus the New Zealand Dollar yesterday, having initially appreciated by around 150 pips. It was a story of strong British retail sales numbers getting caught without an umbrella in the ‘flash crash’ evening storm.
13:30 CAD Retail Sales (MoM) (MAR) Medium 0.3%
13:30 CAD Consumer Price Index (YoY) (APR) High 1.7%
15:00 EUR Euro-Zone Consumer Confidence (MAY A) Medium -3
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