• UK retail sales weigh on sterling
  • German producer prices disappoint
  • Government shutdown weighs on greenback

Sterling struggles on poor retail sales

The pound's rally yet again paused for breath on Friday, slipping against the euro but gaining against a struggling dollar. A disappointing UK retail sales number saw the currency slip on Friday after the monthly index came out 0.8% lower than expected, while the annualised index failed to rise 1.4% and ended up falling 0.2%.

This coming week looks to be fairly changeable for the pound, with a number of mixed data releases. Tomorrow we have the release of CBI orders data, which is expected to fall five points. This is followed by weekly earnings and the UK unemployment rate on Wednesday, which are both expected to remain in line with prior. This is followed preliminary GDP numbers on Friday. While quarterly GDP is expected to remain unchanged, the annualised figure is predicted to fall 0.3% and may weigh on the currency. 

Euro gains on wider market uncertainty

The euro posted a positive performance on Friday, gaining against both the pound and dollar. A mixed German producer prices number weighed on the currency and saw the currency suffer increased volatility against the dollar.

This week we have a number of data releases which may drive further euro uncertainty. German economic sentiment and current conditions data are both expected to rise. However, French and German manufacturing and services PMI numbers are predicted to fall across the board on Wednesday, which could limit any upside. Finally on Thursday and Friday, we have the release of German and French business climate numbers, which look set to remain in line with prior.

Dollar slips on government shutdown

The greenback fell marginally across the board on Friday, finishing down an average of 0.2% despite the release of Michigan Sentiment Data, which fell more than expected, down 1.5 points. This poor sentiment data was overshadowed, however, after the US government proceeded to shut down after Democrats and Republicans, locked in a bitter dispute over immigration and border security, failed to agree on a last-minute deal to fund government operations. 

The US Senate, which has been in talks over the weekend, are due to meet again tonight with the aim of trying to break the impasse. However, tensions may begin to rise if the Senate yet again fails to unlock funds to “re-open” the government.

This week brings a number of data releases which could apply yet more pressure on the currency. Most notable are existing home sales on Wednesday, which are set to fall 7.7%; US durable goods, which are expected to fall 0.5%; and GDP, which is expected to fall 0.2%. If these releases come out in line with expectations, we could see some downside pressure on the greenback as investors begin to question the currency’s ability to withstand pressure from wider markets.

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