Sterling got an 11th hour boost on Friday from a surprise December UK Retail Sales result. Heading into the data release there had been concerns that the result would miss the mark following disclosures from major UK retail chains that the holiday shopping season had been lackluster.
That however did not materialize, in fact, quite the opposite. According to the report, smaller independent stores and websites in the UK picked up the slack from high street retailers and then some. Retail Sales in the UK for the month of December posted a multi-year best at +2.6%, versus expectations of +0.4%, leaving economists stunned and somewhat foolish looking.
The sales data saved the Sterling from what had otherwise been an uninspiring week. UK CPI data from early in the week printed a touch lower than expected, and was generally shrugged off by markets. Sentiment towards the British Pound had been soft most of the week, investors feeling the current trajectory of the UK economic recovery has been fully priced in.
This led the Cable down to 1-month lows earlier in the week; bringing losses in the pair to about 300-pips since new multi-year highs were achieved on January 2nd. The data however triggered a big-figure pop in the pair, helping it move back into neutral territory on charts. Looking forward recent activity helps to take a bit of weight off of the pair’s shoulders and stabilizes it in a range anchored by 1.6400.
GBPEUR was similarly on track for a disappointing week until the Retail Sales result. After reaching 11-month highs last week, this pair looked to be on course for a down week, backing away from last week’s peak by about 150-pips. However following the data, GBPEUR is once again eyeing recent highs, giving sellers that missed the opportunity last time around to once again achieve rates that have not been available in nearly a year.
Generally speaking it’s been a dull week for the Euro, the only notable data released in the Eurozone was CPI, which was pretty much on expectations. This left the common currency drifting mostly directionless as it took its cue from broader themes. EUR$ consolidated in the mid-1.30s this week. Off of charts, this is down a few big-figures from recent highs.
Once again presenting short term buyers who have recently been side-lined an opportunity to lock in at rates more favorable than they have been since late November. However from a longer term perspective economic fundamentals are likely to weigh on the Euro, pointing to further losses in the coming months. Those with longer term hedging needs could benefit from a degree of patience. With that in mind an aggressive limit order could be useful in this kind of scenario.
Next week, there’s a moderate amount of data to keep traders & investors interested. Wednesday’s employment statistics & Bank of England (BoE) policy vote figures will be the main economic releases for the week in the UK. A strong employment statistics result will be necessary to maintain Sterling values at current levels. Any disappointment could lead to investors pushing back their expectations for BoE rate hikes, which would weigh heavily on the Sterling.
There are 2 key days for Eurozone data; Tuesday has German economic sentiment and Thursday sees some PMI numbers. The second half of 2103 saw sentiment index numbers in Germany rise from 36.3 to 62.0, driven primarily by optimism that a global economic recovery led by the United States had started to take root.
Expectations for Tuesday according to a Reuters survey of economists point to further gains at 64.0. Last month the French PMI result was particularly disappointing, posting its worst result in 7-months. Analysts will be watching closely to see if that trend continues. As the common area’s second largest economy, weakness in France would be a serious drag on the prospects of a broader recovery in the EU.
The other event worth being aware of next week is the World Economic Forum in Davos, Switzerland. The series of annual meetings are attended by economists, politicians, central bankers, as well as the best & brightest of the financial industry. Starting on Wednesday and running through the weekend, this year’s theme is “The reshaping of the world”. Since many of the events during the forum are open to the press, comments made by policymakers tend to generate volatility across asset classes.
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