Euro Weekly
The huge losses felt by the Turkish lira at the back end of last week gave sterling some much needed
respite. Trump’s punitive tariffs caused a knock on effect of weakening the euro, to the benefit of
the pound. In general the pound remains weighed down by Brexit speculation and even the release
of generally solid figures this week did little to help it. Tuesday's employment data showed that
unemployment fell to a 40-odd-year low at 4.0% but earnings growth stagnated. The Consumer Price
Index show that the rate of inflation ticked up to 2.5%, exactly in line with the consensus forecast.
Core CPI was also uncontroversial; unchanged at 1.9%. But the Retail Price Index, which includes
housing costs, went up by only 3.2%, having been expected to remain steady at 3.4%. Retail sales
have been more than little erratic this year. Cold weather, hot weather and sporting events have all
had an effect. The ONS reported sales rose by 0.7% in July after June's 0.5% fall.
Concern that there will be knock on effects on the US-Turkey tariffs across Europe weighed on the
Euro this week. Spain, Italy, France and Holland are thought to be large lenders to Turkey and this
caused some concern. However, the euro emerged from the week largely unscathed and there was
little data to cause problems. Italian inflation was steady at 1.5% and Eurozone growth was revised
up to 0.4% for the second quarter, eliminating any possible advantage from the UK.
The US dollar is making gains thanks to President Trump’s trade war continued growth in the US
economy. However, there are still questions about the inherent strength of the greenback with most
of the gains due to the severe losses of the Turkish Lira and the potential consequences for the euro
too. The Lira has weakened dramatically in the last year, with the exchange rate versus the USD up
to 7.2 this morning, 112% higher than the 12 month low of 3.4. July's US retail sales data were all
better than expected. Overall sales were up by a monthly 0.5% and excluding cars they rose by 0.6%.
The Control Group, an important component of the Personal Consumption Expenditure measure so
beloved of the Federal Reserve's policy-setters, rebounded by 0.5% after falling 0.1% in June. Good
numbers then, but they are not likely to accelerate the pace of Fed rate increases.
The Canadian dollar this week faced the consequences of falling prices for oil and equities. The US
dollar reaching a 13-month high certainly didn’t help and midweek the Loonie registered losses
against the dollar and sterling.
Down under, the Australian dollar was assisted by employment figures. In contrast to the scepticism
over UK numbers due to the high numbers of people in part-time, freelance and zero-hours
contracts, the fact that there was a net loss of 3,900 jobs in July was less significant than the major
swing from part-time to full-time working. Overall, unemployment fell to 5.3%, a six-year low and as
the new broke, the Aussie strengthened by more than a cent against the pound.