Sterling Sinks Against Euro

Daily Analysis - 30/08/2017

Euro Crosses $1.20 Threshold

The battered British pound tumbled to an 11-month low against the euro on Tuesday as the single currency gained against most major currencies. Yesterday’s session also saw the euro break above the important psychological level of $1.20 for the first time in two and a half years.

Brexit Doubts Hound Pound

The euro was buoyed by political uncertainty in Britain, with investors expecting the country’s exit from the European Union putting pressure on growth and keeping the pound weak. All eyes were focussed on the third round of Brexit negotiations between David Davis and European Union’s chief negotiator Michel Barnier, which started on Monday, with Barnier saying he was concerned at the tardy progress of the talks.

The weakness in the pound has been further exacerbated in recent weeks on concerns that Theresa May could be replaced as Prime Minister and Tory leader at the Conservative Party’s autumn conference in October, creating fresh political turmoil. EURGBP is currently hovering around the 0.92600 zone after touching a high of 0.93060 on Tuesday.

U.S. Consumer Confidence at 5-Month High

U.S. consumers’ confidence surprisingly strengthened in August to their highest in five months, boosted by improved optimism about current business conditions, a leading survey showed Tuesday. The Conference Board’s Consumer Confidence Index rose to 122.9 in August from a downwardly revised 120.0 in July. Economists surveyed by Reuters had projected a reading of 120.3.

The latest confidence figure was the strongest since the 124.9 recorded in March. In separate data, U.S. home price growth accelerated in June as strong demand continued to support the market. On a seasonally adjusted annual basis, the Standard & Poor's Case-Shiller composite index of home prices in 20 cities rose 5.70% in the three-months to June. Seattle reported the strongest growth at 13.40%, followed by Portland at 8.20%. S&P 500 September futures were last seen just below the key resistance at 2450.

Japanese Retail Sales Slow

Retail sales in Japan grew for a ninth straight month in July, data from the trade ministry showed early Wednesday. However, the pace of growth slowed, as consumers spent less on clothes and cars. Sales edged 1.90% higher in July from the year ago period, topping the median estimate for a 1.00% annualized rise, but slower than a revised 2.20% gain in the prior month.

Spending growth on clothes decelerated to an annual 3.50% in July from 5.30% in June. Spending on cars rose 6.60% in July from a year earlier, which was also slower than an 8.70% annual increase in June. Economists reckon consumer spending is likely to pick-up amidst the tightness in the labour market. EURJPY was last trading around the 131.45000-mark.

German Consumer Morale Near 16-Year High

The upbeat mood among German consumers is set to improve further in September, a widely-followed survey showed Tuesday, bolstering investor expectations that robust consumption will continue to power growth in Europe's largest economy during the second half of the year. The Nuremberg-based GfK Institute’s Consumer Sentiment Indicator rose to 10.9 heading into September, marking the fifth consecutive monthly increase.

The reading is the highest in the indicator since October 2001 and surpassed the consensus forecast of 10.8 in a Reuters poll. GfK linked the unexpected rise to strength in German labour market, which has fueled expectations of further improvement in disposable incomes. The consumer data comes just days after the IFO Index showed German business confidence fell less than forecast in August. DAX September futures reversed from a six-month low to end Tuesday at 11982.