Holding Patterns

Pound Sterling gains further ground as UK Retail Sales rise as expected

The Pound Sterling (GBP) outperforms its major peers, except Asia-Pacific currencies, in Friday’s London session. GBP gains significantly as the UK Office for National Statistics has reported that Retail Sales rebounded in July, as expected, after contracting sharply in June.

The report showed that monthly and annual Retail Sales rose by 0.5% and 1.4%, respectively. As per the report, sales receipts at department stores and sports equipment stores grew strongly, with retailers suggesting that summer discounting and sporting events such as the European Football Championship boosted sales. On the contrary, demand for automotive fuel contracted sharply.

BoE’s next monetary policy meeting in September could also be a tough call. Inflation in the UK service sector declined sharply in July due to slowing wage growth momentum. However, the latest labour market data also showed that the Unemployment Rate surprisingly fell, and that the economy is clearly on an expansion path.

No Major Data?

EUR/USD trades with modest gains amid softer USD

The EUR/USD pair builds on the previous day's late rebound from the $1.0950 area and gains some positive traction during the Asian session on Friday. Spot prices, however, struggle to capitalise on the uptick and currently trade around the $1.0975-$1.0980 region, up just over 0.05% for the day.

A combination of factors prompts fresh selling around the US Dollar, which, in turn, is seen lending some support to the EUR/USD pair. Despite Thursday's upbeat US macro data, investors seem convinced that the Federal Reserve will begin its policy-easing cycle in September and have fully priced in a 25 basis rate cut. This, in turn, triggers a modest pullback in the US Treasury bond yields and exerts some downward pressure on the buck.

Apart from this, the prevalent risk-on mood – as depicted by a positive tone across the global equity markets – turns out to be another factor undermining demand for the safe-haven Greenback. That said, the risk of widening conflict in the Middle East could act as a tailwind for the USD. Apart from this, expectations that the European Central Bank will cut rates again, amid declining inflation in the Eurozone, seem to cap gains for the EUR/USD pair.

No Major Data

First look at August consumer confidence

The Dollar received a lift from the better-than-expected retail sales data yesterday. The data has prompted investors to shift towards pricing a 25bp Federal Reserve rate cut on 18 September. However, there will be a myriad of data inputs into the Fed equation and the events calendar picks up next week. For today, however, the focus will be on August University of Michigan consumer confidence data. This survey will have been taken during the stock market rout at the start of August and could see consumer expectations sink further. This could be a little bearish for the Dollar.

Elsewhere, firmer US rates have allowed USD/JPY to climb back towards ￥150 and have encouraged flows back into the high yielders like the Mexican peso and the South African rand.?

Major Data: Michigan Consumer Sentiment Index 14:00