Geopolitical risk eases; Sterling still suffering

Today’s macro highlights:

  • GBP – Retail sales (July)

  • USD – Housing starts (July)

  • USD – Initial jobless claims (Aug 6)

Geopolitical risk eases; Sterling still suffering

The Dollar continued its upward climb yesterday, reaching a 13-month high, against a backdrop of ongoing geopolitical risk and concerns about the knock-on effect of a slowing Chinese economy. Further signs of economic strength were evident in the release of upbeat figures on domestic retail sales, manufacturing output and worker productivity, which helped push the Greenback higher in the day. Both the Euro and Pound fell to levels not seen in over a year. In Europe, concerns about banks’ exposure to Turkey were the primary driver of the negative sentiment. In the UK, Sterling fell for the 12th consecutive day, lining itself up for the longest losing stretch since 2008. The Pound shrugged off the morning’s inflation figures that came in in line with expectations. Although inflation accelerated for the first time since November 2017, there was little to get excited about given the Bank of England’s rhetoric on the timing of the next rate rise; at the August hike, authorities said it would be the last hike for a long time.

In terms of economic releases, the UK sees retail sales announced at 09.30 BST. These are expected to show growth of 0.2% month-on-month and 3.0% year-on-year in the month of July. It’s anticipated though that today’s resumption of Brexit talks will drive the currency more than any surprise on the data front.

From the Dollar’s perspective, it’s possible that we’ll see a reversal of recent strength today. Two factors are likely to play a part in this. Firstly, news that China’s Vice Commerce Minister is due to visit the US later this month for trade talks may see the Dollar trade lower today, as markets digest the possibility of an easing of trade tensions. Furthermore, with Qatar pledging $15 billion in investment to aid Turkey, we may also see contagion concerns fade somewhat, reducing the Dollar’s attractiveness as a safe haven. On the data front, July’s housing starts and initial jobless claims are set for release at 13.30 BST. While a positive surprise here, indicating ongoing strength in the economy, would support the Dollar, the most likely scenario is that the currency continues to be driven by geopolitical risk instead of economic fundamentals. 


Brexit negotiations resume in Brussels today, which will likely provide some direction for the Pound. Although retail sales are due for release today, they are likely to play second fiddle to Brexit rhetoric in moving the currency.


The pair rebounded off yesterday’s lows and is moving higher in early trading this morning. The Euro has been one of the hardest hit currencies during the Turkish crisis; news that Qatar will step in to help Turkey is helping the currency improve.


The cross struggled to make headway yesterday, and ended the day lower. The Pound is under continued pressure and the Euro is experiencing something of a relief rally; this has likely set the tone for the day.