Second quarter GDP was the main piece of data for the UK last week. GDP showed a rebound to 0.4% for the quarter reflecting rises in industrial production and construction. Services were more of a concern showing no growth, with exports also falling over 3.5%. Sterling fell against the USD to new lows for a year, though this was mostly related to US Dollar strength and Emerging Markets concerns.
As we start to look ahead at the third quarter, We may see data on the labour market suggest that there is a lack of supply. Unemployment is expected to have fallen further. Wage numbers will be closely watched, expected to be unchanged from previous 2.5% growth, but with any greater number putting pressure on the Bank of England. The Outgoing BoE policymaker McCafferty commented on Thursday that wage inflation could rise by 4% next year. Inflation is expected to remain higher with core inflation likely to be close to 2%.
Brexit talks are set to resume on Thursday, whilst the EU’s chief negotiator, Michel Barnier may hold a news conference on Friday. Clearly, the markets will be very sensitive to any Brexit news as negotiations progress.
GBPEUR – 1.1203
GBPUSD – 1.2741
German industrial production and factory orders were weaker than expected, painting a picture of weaker growth. The Euro suffered generally, as the Turkish Lira continued to plummet. With Emerging Markets currencies suffering generally, EURUSD lost substantially on a flight to the safer dollar alongside concerns over European banks exposure to Turkey.
This week we will see Eurozone final inflation data after the German, French and Spanish readings. The second estimate of second-quarter Eurozone GDP numbers will likely be in line with previous numbers. Meanwhile, German GDP may be more interesting and could be relatively weak following the poor Eurozone overall number.
EURUSD – 1.1373
EURGBP – 0.8926
The main data of last week showed July inflation stable at 2.9% with ‘core’ inflation rising to 2.4%. With a major focus on Turkish lira depreciation and general concerns over Emerging Market currencies, the US Dollar was a major safe haven beneficiary, surging higher. This move was further supported by comments, suggesting further rate hikes could be likely, by one of the Fed policymakers, Charles Evans.
This week, we expect to see US retail sales giving further evidence of robust growth. Industrial production is also likely to tell a positive story in line with broader economic growth, with a rise of 0.5% pencilled in for July. There are no Fed speakers scheduled for this week, though the Federal Reserve’s August meeting minutes are released next week. We will also see the details from the symposium at Jackson Hole.
GBPUSD – 1.2741
EURUSD – 1.1373
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*Rates correct as at 9am on the date of publishing
