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Currency research

Currency research

Information and analysis to help you stay up to date with the foreign exchange markets.

Sterling retreats to 2018 lows

Mon 13 August 2018

Highlights from last week:

  • Pound restricted as Brexit woes rumble on
  • US consumer inflation spurs dollar
  • Australian and New Zealand central banks hold fire

The week ahead:

  • UK consumer inflation data (Wednesday, 9.30am)
  • US retail sales data (Wednesday, 1.30pm)
  • Euro zone consumer inflation data (Friday, 10.00am)

'No-deal Brexit' clouds thwart Sterling

Sterling's decline lingered on last week, falling to fresh 2018 lows against both the US dollar and euro.

The pound's latest move lower came amid a higher probability of a no-deal Brexit. International trade secretary Liam Fox has recently said he sees a 60-40 chance of no deal being made. Bank of England governor Mark Carney also recently warned that the chances of the UK exiting the EU without a deal remain 'uncomfortably high'.

Domestic economic data also failed to inspire a sterling recovery. Gross Domestic Product (GDP) figures for the second quarter showed growth of 0.4% compared with 0.2% in the first quarter. However, manufacturing remained subdued, contracting for the second quarter in a row.

US dollar gains bolstered by higher inflation

As well as reaching notable highs against the pound, the US dollar also hit year highs versus the euro after higher inflation boosted the country's interest rate prospects.

The core inflation index which excludes food and fuel costs rose 2.4% year-on-year last month, the largest annual gain since 2008. The news bolstered expectations the Federal Reserve could raise interest rates again in next month's meeting. Elsewhere, weekly mortgage applications data suffered at the hands of higher property prices. Higher house prices are beginning to stifle US mortgage demand with applications falling by 3% last week.

A telephone deal of £10,000 at midday on Friday would have purchased US$12.608 via our telephone Currency Service.

Turkish lira collapses as US doubles tariffs

The Turkish lira suffered heavy losses against the pound and US dollar, amid fears of president Erdogan increasing control over the economy and deteriorating US/Turkish relations. US president Trump announced the US would be doubling the tariffs on Turkish steel and aluminium. The lira's slide stoked fears of the contagion spreading to euro zone banks with exposure to Turkish corporate debt. Concerns also spread to other emerging market currencies such as the South African rand. The rand fell to lows not seen since 2016 against the pound.

Contrasting fortunes for Australian and New Zealand dollars

The Australian dollar finished the week better off against the pound despite the Reserve Bank of Australia leaving interest rates unchanged at its policy meeting on Tuesday. The central bank left rates at 1.5%, however an upbeat commentary from governor Lowe gave the Australian dollar a welcome boost.

The New Zealand dollar suffered declines during the week after the Reserve Bank of New Zealand confirmed it now expects to delay the next change in interest rates to come a year later than forecast. The central bank left rates on hold at record lows of 1.75% in Wednesday’s meeting and expects no change until 2019 and into 2020.

Solid unemployment figures helped the Swiss franc carry on its latest advance versus sterling after latest figures released on Thursday revealed the country’s level of unemployment remained unchanged at 2.4% in July, its lowest level since 2008.

The Japanese yen reached highs not seen since September last year versus the pound as the country’s economy grew more than forecast in the second quarter. A rebound in both consumer and business spending saw GDP grow by an annualised 1.9%.

A buoyant labour market helped the Canadian dollar hit year-highs against the pound last week. The Canadian economy added over 51,000 jobs in July, whilst the rate of unemployment returned to its lowest level in 40 years.

The week ahead

A number of data releases will give sterling much to digest this week. UK unemployment figures will be heard on Tuesday (9.30am). Consumer inflation is due to follow on Wednesday (9.30am), whilst retail sales data will offer a gauge of the current health on the UK consumer on Thursday (9.30am).

Domestic releases scheduled for the euro zone include Gross Domestic Product data and industrial production figures (both Tuesday, 10.00am). Trade balance data will follow on Thursday at 10.00am, whilst the euro zone’s latest consumer inflation figures will conclude the euro’s week on Friday at 10.00am.

Headlining the US dollar's domestic calendar this week will be Wednesday's release of US retail sales data (1.30pm). Both industrial and manufacturing production figures will follow at 2.15pm.

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Japanese industrial production data (Tuesday, 5.30am)

South African retail sales data (Wednesday, 12.00pm)

Australian unemployment data (Thursday, 2.30am)

Norwegian central bank policy meeting (Thursday, 9.00am)

Canadian consumer inflation data (Friday, 1.30pm)

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