Calm after yesterdays Euro Storm

Good morning everyone,

 

Yesterday’s large increase in UK retail sales helped push Sterling exchange rates higher. Much higher levels of consumer spending fueled larger confidence in the outlook of the UK economy, even in light of Wednesdays weaker wages data.

Later that afternoon and despite the ECB announcing an end to its asset purchase programme, changes to the forward guidance on interest rates resulted in the Euro exchange rates falling across the board. The OIS curve is fully pricing a 10bps rate rise in the back end of 2019, compared with September 2019 earlier this week. The pound increased to around €1.1450, but its ascent against the US dollar after strong UK retail sales proved to be short-lived. With this week’s major data releases and events largely out of the way, today’s calendar seems unlikely to have more than a relatively minor impact on markets.

Ahead of next week’s Bank of England (BoE) policy meeting the Sterling to Euro  exchange rate looks vulnerable to downside pressure. Although there is no expectation for the BoE to make a move at this meeting, investors are still keen to assess the outlook of each BoE policymaker. If the meeting raises the likelihood of an August interest rate hike, this is likely to see Sterling exchanges rates move higher. However, any indication that the disappointment of the wages inflation economic data has dented the confidence of the BoE could weigh on Sterling. 

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