Pound Steady After UK Retail Sales Jump
- Feb 21
- 2 min read
GBP : Pound steady after UK retail sales jump
After UK retail sales exceeded forecasts and the government announced a rare January budget surplus, the British pound appreciated vs the US dollar and the euro. Retail sales increased 1.7% MoM, well exceeding the 0.3% projection, and the GBP/EUR rose to €1.2080. As markets reduced their bets on the BoE rate drop, the GBP/USD exchange rate reached a two-month high of $1.2678.Even with the positive findings, there are still concerns. Food purchases drove the sales increase, while non-food sales declined, suggesting a lack of customer confidence. A move toward eating at home may also impact bars and restaurants, whose prices are expected to rise in April.
Although the pound recovered, its sustainability hinges on whether demand stays widespread. Future inflation and wage statistics will be crucial as the BoE balances inflation risks with the economic slowdown.
EUR : Euro gains on Dollar
As dollar longs unravel, the euro has increased but is still weak across borders. Although our economists believe there is little possibility of a significant recovery in GDP, today's PMI release might provide a spark. Markets anticipate that the Eurozone composite PMI will only slightly increase from 50.2 to 50.5. Particularly since the ZEW survey revealed increased investor optimism ahead of the election, German data will be eagerly monitored. PMI predictions are still low, though.
The German election on Sunday is the main event for the Euro. AfD is at 20%, SPD is at 15%, and CDU/CSU is at 30%, according to polls. Because of coalition hurdles, markets aren't factoring in significant risk from a strong AfD showing. However, given the recent highs of EUR/USD, traders might benefit prior to the vote. Most people are still pessimistic about the couple.
USD : Dollar weakens after Trump hints at China trade deal
Due to significant positioning changes, the Dollar erased weekly gains yesterday, making FX markets erratic. A number of factors contributed to the drop, including the yield curve flattening after Treasury Secretary Bessent's comments, Trump's hinting at a US-China trade deal, disappointing US data, and equities' struggles following Walmart's poor earnings. Even while trade hopes can make news, markets are still wary of Trump's comments. Although Bessent's initial meeting with Chinese officials today may be fruitful, long-term tariff policies point to protracted talks.
Most believe that the dollar's slide is a response to the worsening attitude in the US, rather than a pursuit of it. Walmart saw a decline in consumer spending, and new data raises doubts about the optimism of late 2024. Given the central bank's concerns about inflation, short-term USD swap rates have slightly decreased but are still avoiding fully pricing in two Fed cuts.
Although most people don't think the dollar will continue to decline, there will probably be volatility in the near term. In the end, trade policy ought to take precedence over growth concerns and hope for peace talks between Russia and Ukraine. The majority still have an optimistic view on the dollar.
