GBP: Sterling held higher by inflation expectations

EUR: FT report leaves euro unaffected

USD: Retail sales figures make next week’s Fed meeting very interesting

Sterling

Month on month retail sales have continued to decline in the UK with competing pressures coming from rising costs, as evidenced at the beginning of this week, and higher cases of Covid-19 cutting consumer confidence.

Put that together with stock shortages and supply issues and the outlook for the consumer in the UK does not look as strong as it did a few months ago. The only caveat remains that these numbers do not include restaurant/pub spending so we may simply be at a point wherein people are prioritising spending on experiences over goods.

Sterling will likely stay at its current levels given that inflation release earlier this week with traders continuing to bring forward their expectations of when the Bank of England will raise rates.

Euro

A report in the Financial Times overnight that suggests the ECB is expecting inflation in the Eurozone to sit sustainably above the 2% by 2025, causing rates to increase in 2023, has been labelled as inaccurate by the central bank. The release has had little effect on the euro overnight but serves to remind us that hawkish elements within the Eurozone are looking for higher rates sooner than the market will happily forecast at the moment.

That being said, we expect euro crosses to remain quiet today.

USD

The dollar has hit a three-week high overnight following stronger than expected retail sales in the US. Ahead of a Federal Reserve policy meeting next week, conversations will one again turn to the timeline of tapering of asset purchases that will fit in with the current data coming out of the US economy.

The continued uncertainty over news out of China, with anything from tech to property firms taking a hit has yet to offer much of a blow to ongoing risk sentiment but must be closely watched for signs of contagion.

Elsewhere

The news yesterday over the decision of the Australian government to coordinate with the UK and US over a new generation of nuclear-powered submarines has put further pressure on the Australian/Chinese relations. With China expected to retaliate by purchasing less iron ore from Australia then we can expect the AUD to push lower in the coming sessions with another 3-4% possible should Beijing overtly call out Canberra’s decision.

Market rates

Today’s Interbank Rates at 09:02 against sterling. Movement vs yesterday.

Euro	€1.171 ↓
US dollar	$1.378 ↓
Australian dollar	$1.885 ↑
South African rand	R20.11 ↑
Japanese yen	¥151.6 ↑

Have a great day and a better weekend.