After a hesitant start last Friday the euro headed mostly higher against the US dollar. It was initially hampered by some unusually punchy US employment data which indicated the creation of 287k new jobs in June. However, the balancing factor was a downward revision to the previous month’s data, such that only 11k new jobs appeared. Investors decided the net result was not strong enough to encourage any early interest rate increase by the Federal Reserve so they became less enthusiastic about the dollar.
There were no economic statistics of any consequence from. Arguably the most important ones were -1.8% decline in German exports during May, the -1.2% fall in Euroland industrial production for the same month and euro zone inflation, which was steady at 0.1%. A couple of minor ecostats are worthy of mention. It was heartening to see the 2.9% annual rise in Greek industrial production eclipse the 0.5% increase for the euro zone as a whole. And it was hilarious to read that Ireland’s gross domestic product expanded by 26.3% in 2015. Even if the figure is statistically correct it – and they insist it is – it is a gross misrepresentation of what was really going on.
UK economic data were as rare as hens’ teeth too, not that anyone cared much about them with Brexit hogging the headlines. Britain’s trade deficit was smaller than expected in May. The British Retail Consortium’s Retail Sales Monitor showed sales in June to be down by -0.5% on the same month last year. The Royal Institute of Chartered Surveyors’ Housing Price Balance came in at +16, its weakest reading since the beginning of last year. The RICS blamed a “marked drop” in housing market activity on the uncertainty surrounding the EU referendum.
While not much was happening in Euroland and the United States there was high excitement in Britain. The withdrawal of one of the final two candidates from the Conservative Party leadership contest left Theresa May with an unobstructed path to Downing Street and on Wednesday she took over the job of prime minister, two months sooner than expected. Given investors’ invariable preference for certainty over uncertainty, the formation of a new government was reassuringly helpful to the pound.
A day later the Bank of England did not cut its benchmark Bank Rate from 0.5% to 0.25%. That would not have mattered had many analysts not predicted – and many more investors positioned for – such a move. When it was announced the pound jumped a cent higher against the euro and the move was extended into Friday morning.
Overall, then, it was the best week that sterling has enjoyed for a while. It strengthened by nearly four euro cents and was up by an average of 3.5% against the other dozen most actively-traded currencies. The euro was up by almost half a cent against the US dollar.
Coming up later today are the US data for inflation and retail sales and the Bank of England governor will be making an appearance. Next week’s highlights will be the data for UK inflation and retail sales and Thursday’s European Central Bank press conference, at which the Governing Council’s latest monetary policy decision will be discussed.
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