With the US Dollar seemingly incapable of doing anything wrong almost any currency (bar Russian Ruble of course) can seem to shine when compared to its traditional benchmark, the greenback. Amidst the currencies struggling with the surging value of the US Dollar there is still considerable displacement creating winners and losers in the post-Covid environment. As we discussed yesterday, the non-farm payrolls in the US published last Friday yet further reinforced the hegemonic position of the US Dollar. Many data releases in countries including the UK and currency areas such as the Eurozone are failing to deliver such flattering numbers. Despite that, in the doom and gloom of the statistics, there could be a silver lining.
In the UK, retail sales were shown to have grown year on year at +2.3% in July. This may seem positive but for a metric comparing the value of goods purchased in the retail space at two different time periods, it’s easy to see how inflation can mask the true health of the retail sector, a near-perfect proxy for consumption in the economy. Over this same period we know consumer price inflation, concerning a near identical basket of goods in an economy, grew by far more, meaning the real value of spending likely contracted.
Underwhelming real retail spending may undermine the currency in the short run. However, this may not be a bad thing, after all the whole point of the tighter monetary policies we are seeing created at the Bank of England are designed to do just that, restrict credit such that the price level via the demand function moderates in the economy. This has further brought into question just how the market is digesting data at such a volatile time as discussed by Humphrey yesterday.
For the remainder of the week, we have publications expected from some Eurozone countries and the US regarding their respective rates of inflation. Towards the latter end of the week, the data focus will switch to growth and employment with key observations being published in the UK and US. As we have seen with recent data releases, as uncertainty in the economy rises and the gap between forecast and reality often widens, we can expect potential volatility during these releases.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – (No) confidence neighbours
Charles Porter
Tue 17 Dec 2024
(No) confidence neighbours The vote of no confidence that brought Michel Barnier’s French parliament to the ground is only just in the rear-view mirror. Yesterday, Olaf Scholz’s coalition faced a similar vote paving the way to national elections in Germany. At the same time as we have been commenting upon the economic malaise that has […]
Daily Brief – That’s going to leave a mark
Charles Porter
Thu 19 Dec 2024
That’s going to leave a mark Overnight the Federal Reserve published its latest monetary policy decision. The relentless appreciation of the Dollar lately has been driven by the combined narratives of a soft landing, US economic exceptionalism, the forthcoming Trump presidency and the belief the Fed may have to moderate its easing cycle accordingly. The […]
Daily Brief – British Pound
Humphrey Percy
Fri 20 Dec 2024
British Pound With GBP if not all at sea but wallowing against the crashing waves of USD strength, it is a tale of two cities for beleaguered Brits: GBP/USD dipping below the previous floor of 1.2600 but versus EUR GBP still looking firm due to the apparent divergence between the Federal Reserve and the European […]
