UK Retail Sales Release Leaves Pound (GBP) Exchange Rates Floundering
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate drove onward and upward on Friday, capitalising on the UK’s below-forecast retail sales print and the drop in demand for Sterling that ensued.
The Office for National Statistics (ONS) revealed that overall retail sales volume increased by 1.6% year-on-year in January, up from the previous period’s 1.5% but below the forecast of 2.5%.
The month-on-month figure proved similar by printing at 0.5%, up from the previous period’s massive -1.4% contraction but coming up short of the expected 0.5%.
These readings were buoyed slightly by a rise in the purchase of sporting equipment in January’s traditional gym rush – trades that helped offset a fall in the sales of food goods.
Nonetheless, the reaction to these results has been largely negative, with the below-forecast reading boding poorly for the UK’s economic outlook.
Richard Lim, Chief Executive of the research consultancy Retail Economics echoed this sentiment, stating:
‘Following a wave of profit warning and job cut announcements, these figures confirm a terrible start to the year for retailers. Indeed the worst January since 2013’.
In other news UK PM Theresa May is currently in Germany to order to attend the annual Munich Security Conference, with markets also interested to hear that she will be holding talks with German Chancellor Angela Merkel.
If progress on the Brexit transition front is demonstrated following these talks then Sterling could find some support.
Iron Ore Celebrates Lunar New Year Early – Australian Dollar (AUD) Exchange Rates Gain Support
The Australian Dollar (AUD) found some support on Friday as iron ore markets began the Lunar New Year with a bang.
Metal Bulletin’s iron ore index climbed to its highest level since January 11, with optimism rising for high steel demand during China’s Spring construction season.
An analyst in Shaghai spoke to Reuters, saying:
‘Many mills have good profit expectations for the first and second quarter so they have increased purchases of iron ore’.
In other news the Australian Dollar gained after a series of statements from the Reserve Bank of Australia (RBA) Governor Philip Lowe.
Lowe spoke to the Parliamentary Committee in Sydney on Friday, claiming that the timing of the next rate hike would be dependent on unemployment continuing to shrink and inflation seeing a steady rise.
More significant, however, were his assertions that the next monetary policy decision by the bank will be to ‘move interest rates up, rather than down’, whilst also claiming that a strengthening global economy will help put inflation back on the international agenda.
The market response to this outlook was largely positive.
Australian Dollar Pound Sterling (AUD/GBP) Exchange Rate Forecast: UK Wage Growth in the Spotlight
The AUD/GBP exchange rate could encounter some difficulty next week as markets react to Wednesday’s UK wage growth release.
Many analysts, as well as the Bank of England (BoE), now predict that UK wage growth will be on the rise, with the UK’s tightening labour market helping to propel the figure.
Indeed, Ben Brettel, Senior Economist at Hargreaves Lansdown has claimed that there ‘could be some light at the end of the tunnel’, continuing:
‘The Bank of England (BoE) says wage growth is on an upward trajectory, while inflation may well have peaked. This means we could see an end to falling real wages in the coming months which would provide a welcome fillip to cash-strapped households’.
If this proves accurate then market hype for a BoE rate hike in May will reach fever pitch, sentiment that could provide the Pound even more support.