This market report discusses the impact of recent Retail Sales data and the current state of the UK economy, whilst looking ahead at what could impact Sterling next week. The below table shows the market movements for a number of currency pairings in the last 30 days:

Currency Pair% ChangeDifference on £200,000
GBP/EUR1.8%€4,150
GBP/USD2.1%$5,450
GBP/CAD2.6%CAD $8,840
Retail data - Sterling exchange rates

Sterling under pressure

UK Retail Sales came out stronger in July than the expectation as UK consumers increased their spending on food. The Office for National Statistics confirmed growth of 0.3% which was higher than expected, but this did little to support the Pound, highlighting the problems facing the UK economy at the moment.

One of the concerns for the British economy is rising inflation and falling wage growth. This means that the cost of living is rising in the UK. The Retail Sales figures could have been taken as positive as it means that there is still appetite for spending in the UK but with inflation still high at 2.6% and Average Earnings published on Wednesday coming out at 2.1% there is still a clear disparity and this is causing a headache for the Bank of England.

Only back in June we saw a 5-3 split in favour of keeping interest rates on hold, but this month the vote changed to 6-2, showing less chance of an interest rate hike coming this year. With the cost of living rising this means that the central bank have little or no option to keep rates at their historic lows, as a rate hike would in effect push up the cost of living even further than we are at the moment.

Retail Sales for the year showed annualized growth of 4.1% and this does suggest that the economy is showing signs of resilience but it also shows the heavy reliance of Retail Sales on the British economy.

The issue of the Brexit uncertainty is also keeping the Pound under a lot of pressure, and until we have some form of resolution which I think will be a long time away we could see the Pound struggle for quite some time.

As we go into next week the latest Inflation Report Hearings are due to be announced on Wednesday. With inflation one of the main topics on the agenda for the Bank of England, and UK GDP on Thursday I think we could be in for a volatile end to next week for the Pound.

Sterling versus the Euro is trading at its lowest level since October last year and with all the uncertainty at the moment, and the news from the Eurozone coming out better than expected in recent times, this is causing the Pound to remain under a huge amount of pressure.

If you are in the process of buying a house on the continent and are concerned about what may happen to the value of the Pound, it may be worth looking at buying a forward contract which allows you to secure a rate for a future date for a small deposit. If you would like more information please contact a member of the team on 01494 725353.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.