Pound Reaches Yearly Highs Against Euro and Dollar After Strong Retail Sales

GBP

GBP/USD has surged to 1.3330 (interbank), its highest level since February 2022, while GBP/EUR is trading at 1.1915 (interbank), having reached 1.1930, the highest since August 2022.

The Pound strengthened after the Bank of England’s Monetary Policy Committee (MPC) left interest rates unchanged at 5.0% in its September meeting, indicating that future rate cuts will be gradual. Eight members voted to maintain rates, with only one vote for a cut from external MPC member Swati Dhingra, a shift from the previous meeting’s 5-4 vote in favour of a cut.

The MPC also unanimously agreed to reduce the stock of UK government bond purchases held for monetary policy purposes. Additionally, UK retail sales saw robust growth in August, with volumes increasing by 1%, surpassing economists' expectations and marking a continued recovery from the 0.7% rise in July. Year-on-year sales grew by 2.5%, well above the City consensus of 1.4%.

MPC member Catherine Mann is scheduled to speak shortly.

Today’s Events (GMT+1):

07:00 - Retail Sales (Aug) – Actual: 2.5% vs Forecast: 1.4%

07:00 - Core Retail Sales (Aug) – Actual: 2.3% vs Forecast: 1.1%

10:00 - BoE MPC Member Mann

EUR

EUR/USD is steady, currently trading at 1.1162 (interbank), close to the August peak of 1.1201.

This morning, German producer prices declined by 0.8% year-on-year in August, slightly less than the anticipated 1.0% fall. Additionally, ECB Vice President Luis de Guindos stated that the central bank remains open to further policy adjustments, indicating, “we will have more information in December than in October, and we have left the door totally open.”

The European Central Bank cut rates for the second time this year last week, but uncertainty persists regarding the timing of the next move. Later today, ECB President Christine Lagarde will speak at the Michel Camdessus Central Banking Lecture in Washington DC.

Today’s Events (GMT+1):

07:00 - German PPI (Aug) – Actual: 0.2% vs Forecast: 0.0%

16:00 - ECB President Lagarde Speaks

USD

The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, is up 0.2% to 100.480 but remains just above a 12-month low.

The Federal Reserve cut interest rates by 50 basis points and initiated an easing cycle that could see rates drop by as much as 125 bps by the end of the year. However, Fed Chair Jerome Powell offered a less dovish outlook for medium-to-long-term rates, stating that the central bank’s neutral rate will be higher than in the past.

His comments limited the dollar’s overall losses and even saw the currency appreciate briefly following the Fed’s decision on Wednesday. Markets currently indicate a 40% chance of another 50-basis-point cut in November and have 73 bps priced in by year-end, with rates expected to settle at around 2.85% by the end of 2025, which is now considered to be the Fed's neutral rate.

Today’s Events (GMT+1): 19:00 - FOMC Member Harker Speaks

CAD?

USD/CAD remains stable, currently trading at 1.3566 (interbank).

Canadian CPI figures released earlier this week did little to boost market confidence, as headline inflation fell to 2.0% year-on-year, down from the previous 2.5%. Today, the latest Canadian retail sales data for July will be released, with expectations for retail sales to remain steady at around 0.3% annually.

Bank of Canada Governor Tiff Macklem will also be speaking at the National Bureau of Economic Research Economics of Artificial Intelligence Conference in Toronto, though it is unlikely that much discussion of monetary policy will arise.

Oil prices have staged a strong recovery from recent three-year lows, with Brent crude currently at $74.66 per barrel and West Texas Intermediate (WTI) at $71.70 per barrel.

Today’s Events (GMT+1):

13:15 - BoC Gov Macklem Speaks? ?????? ?

13:30 - Retail Sales (Jul) - Forecast: 0.5%

13:30 - Core Retail Sales (Jul) - Forecast: 0.2%

13:30 - RMPI (Aug) - Forecast: -2.0%

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