Sterling Higher as Data Provides Support

U.K. Data Provides a little comfort

The U.K. economy had a reasonably upbeat month in July as wages grew at a little above expectation, Inflation showed signs of levelling off and the consumer continued to spend.

Retail sales data released yesterday showed spending in July rose month on month by 0.3% although the year on year data was a little weaker following a stellar performance in July 2016.

The pound found some support that had been distinctly lacking during the early part of the week despite the better than expected jobs employment and inflation data. The medium-term support for against the Euro at 0.9140 held strong while the dollar resumed its gyrations providing impetus for the pound to test resistance at 1.2900.

Last week’s trade data was mixed with current performance reasonably strong but concerns over Brexit progress lowered future expectations. Exporters are prepared for Brexit as a concept but are concerned over the lack of progress being made in negotiations. It is going to be some time before they receive any firm guidance and while the uncertainty exists business investment will continue to fall.

Next week is a fallow week for U.K. data giving the market the chance to contemplate whether the U.K.’s economic performance is as bad as they had feared.

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Brexit concerns continue to affect sentiment

There have been rumours that the soft October deadline for progress on EU’s the three initial issues; The Irish border, the final bill and the fate of EU citizens remaining in the U.K. is going to be extended, by the U.K., to December. The EU is becoming increasingly frustrated at the British belief that since it has set the date for departure that it controls the “clock” for reaching certain milestones.

The bureaucratic nature of the EU dictates that even if they set a ludicrous timeline for a certain event to take place or an issue to be resolved, they expect that timing to be rigidly adhered to.

Of the three initial EU requirements only the Irish border appear to have received any attention. Since 1923 there has been free movement of people between the two Irish states which obviously led to free movement throughout the U.K. It seems that following the U.K.’s proposal that the status quo remains (hardly taking a long time to consider) that won’t be good enough for the EU who with a typically heavy-handed attitude want to establish border controls that have never existed.

Far from expediting Brexit, such intransigence could lead to an “Irexit” debate starting since the effect on the Irish economy could be devastating.

ECB Minutes confirm sanguine attitude to higher rates

ECB President Mario Draghi could not have been clearer in his assertion that interest rates in the Eurozone will remain on hold until the ECB Council is convinced that growth is sufficiently resilient across the region.

It was therefore something of a surprise that the market reacted negatively to the minutes of the most recent meeting which were released yesterday. The common currency fell initially but quickly recovered as buying interest from all quarters was piqued by the unexpected fall.

It seems that traders are unconvinced by the recovery of the Eurozone economy particularly since there are one or two “maverick” economies within the region where data and reality mean totally different things.

German Finance Minister Wolfgang Schaeuble made a veiled request for tighter policy this week saying he believed that the era of easy money was coming to an end. His words could easily have been interpreted as “I am really looking forward to having a German as ECB President. We will then be able to bend policy to suit German needs more”. Jens Weidmann the Bundesbank President is widely expected to be the next ECB president when Sr. Draghi leaves in November 2019.