Thursday 23 November 2017

Daily Market Update: Dollar Drops Back as Brexit Continues to Dominate

Retail sales rose 0.9% in May versus estimates of 0.2%.
Retail sales rose 0.9% in May versus estimates of 0.2%.

Richard Ramsey

A very busy day yesterday starting with some solid retail sales figures for May coming out of the UK.

Retail sales rose 0.9% in May versus estimates of 0.2%. This gave sterling some much needed respite after some recent opinion polls on Brexit showed 53% now want to leave and 47% want to stay excluding don’t knows. This particular survey was by telephone and is exclusive to the Evening Standard – it is well respected. The main economic event from the UK yesterday, though, was the Bank of England policy announcement. The June MPC meeting brought unanimous votes for unaltered monetary policy settings, as was universally expected. The June MPC minutes were very similar to that of May’s and was word-for-word in places highlighting how little had changed in terms of the MPC’s assessment of the economic outlook at home and abroad or the main risks to that outlook. Unfortunately, the tragic death of British MP Jo Cox is what dominated the headlines yesterday and Brexit campaigning was suspended as a mark of respect.

Figures out of the Eurozone showed that inflation remains negative. The report showed that consumer prices fell 0.1% in May from a year ago, but slower than the 0.2% decline seen in April. Headline inflation has been below the European Central Bank’s target of ‘below, but close to 2%’ since early 2013.

Over in the US, the dollar experienced a modest reaction against its major counterparts following the release of the May Consumer Price Index (CPI) data. The data showed that consumer prices increased 0.2% (MoM) and 1.0% (YoY). Both of these figures fell short of economists’ projections of 0.3% and 1.1% respectively. However, the ‘core’ did come in at 0.2% (MoM) and 2.2% (YoY), in line with expectations. We also had Initial jobless claims out of the U.S. yesterday and they rose by 13,000 to 277,000 in mid-June but the feeling was the increase was likely tied to seasonal quirks that could unwind over the next few weeks.

The dollar rallied post the Fed decision, but yesterday dropped back, and by more than it had rallied. It was down to $1.1145 at one point against the euro but finished around $1.1260. Cable was the same with the low yesterday touching $1.4061 but finishing comfortably above $1.42. EUR/GBP could be the one to watch as we have heard a lot about sterling pressures over recent times but yet the rate has struggled to get and remain above £0.80.

Moving to today, there is not much economic date out. We do have some current account figures out of the EZ at 09.00am followed up by some labour costs at 10.00am. ECB’s Coeure and Draghi also speak through the day and the markets will watch for any information they might provide. In the U.S. we have Housing Starts and Building Permit figures out at 13.30.

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