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GBP shrugs off weak retail sales numbers, now enjoy the long weekend

Good morning

 

There wasn’t a huge amount going on in the currency markets yesterday, indeed apart from a few moments we’ve felt like we’re in something of a holiday mode.  USD did find a bid yesterday on better than expected PMI numbers.  They followed mildly disappointing PMI readings from the EU and UK.  The US data was strong enough to lower the chances once again of a US rate cut.  There are still just over 25bps of cuts priced in for 2024, with December being the favourite for now, although Fed officials continue to warn of rates being higher for longer and I’m not sure we’ll see a cut unless we see a real turn lower in inflation or worryingly weaker economic data out of the US.

 

There is a growing difference of opinion from various central banks on their view of the next rate move.  RBNZ and RBA have sounded more hawkish, Fed seem to be happy on hold, ECB, BoC and BoE have all talked of possible rate cuts.  It will make for an interesting few months, that’s for sure.

 

GBP had a brief and shallow dip this morning on the release of some pretty disappointing UK retail sales numbers, it took just a couple of minutes to return the pre-release levels and has since moved slightly higher, if still below the highs seen earlier in the week.  GBPUSD is now 1.2700 having been down to 1.2675 on retail sales data, and we have been as high as 1.2760 this week.  GBPEUR is now 1.1735, ten pips or so above the post-retail sales lows but below the 1.1765 area which capped the upside yesterday morning.  I’m watching the key 1.1770 area with interest.

 

We have also seen GBP push higher, or at least hold gains, against other currencies.  GBPAUD is now up to 1.9235, GBPJPY holding around 199.35, and I see GBPZAR has pushed up towards the mid-23’s having traded below 23 earlier this week.  There is an election in South Africa next week, some thinking the recent ZAR strength comes from the idea that the ruling ANC will lose some votes but still hold a big enough majority to not have to rely on coalition partners.  I’ve not see recent polls but perhaps the 2% decline in ZAR over the last couple of days suggests growing concern ANC could lose their majority.

 

We will have no speeches or public statements by BoE officials until after the UK election on 4th July, nothing sinister, it is just the normal policy.  What some think is more sinister is why Sunak has chosen to call an early election, with some even suggesting that by July/August it will have been announced we are at war with Russia and Sunak does not want to be in power when that happens.  Conspiracy theories again, this one fuelled by the MP Andrew Bridgen who recently said in an interview that ‘we are actually at war with Russia now, they just haven’t told you.’ 

 

Is he right?   There have been worrying noises from Moscow, they recently released draft details of how they are looking to change some international borders, and it is no secret that EU/NATO forces are building in Eastern Europe.  A lot of this warmongering seems to stem from  Putin’s warnings that while he wants no war with NATO, if Ukraine start using Western weapons based outside Ukraine, such as jet fighters, they will be legitimate targets wherever they are based, even if they are on NATO territory.  With war raging in Ukraine, the West will have to choose between letting Russia take Ukraine, waging war with Russia to get them out of Ukraine, or to accept that there is unlikely to be peace in Ukraine.  Not a great set of choices really.   Meanwhile China continues its military drills around Taiwan, just to add to the uncertainty in the world right now.

 

Enough of the doom and gloom.  There is a long weekend coming up, the sun is shining, and there is plenty to look forward to.  The FA cup final tomorrow, the Championship play off final, which is likely to determine Mark’s mood for the next few weeks, a bit of golf I hope and we might even see temperatures up to 20°c again.  Still far too many rain drops on the BBC weather forecast for my liking mind you.

 

With the bank holiday Monday in the UK and in the US, there shouldn’t be much going on at all, we’ll be keeping one eye on the markets for you just in case, hopefully with a cold beer in hand while stoking the barbeque with the other.  Chance would be a fine thing!

 

Have a great weekend.

 

-  10.15 ECBs Nagel speaks

-  13.30 US durable goods

-  13.30 CAD retail sales

-  14.35 Feds Waller speaks

-  15.00 US Michigan sentiment survey

 

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