Retail Sales disappoint raising concerns over UK Economic Recovery

United States Dollar:

GBP/USD - Sterling initially fell as UK retail sales, BBA mortgage approvals and CBI Industrial trends survey all came in below expectations. However, they then regained some ground as US jobless claims and manufacturing PMI data disappointed. The pair opened the day lower as the Bank of England's Ben Broadbent, speaking at the society of business economists’ conference, reiterated that the bank will only increase rates once 'headwinds dissipate'. Considering the scale of headwinds coming from the eurozone it may be sometime before this happens. Shortly after MoM Retail Sales printed -0.3% vs -0.1% exp, BBA mortgage approvals fell to 39.3K vs 41.5K exp and the CBI Industrial Trends Survey posted a reading of -6 vs -4 exp. These figures raised concerns that the UK economy has started to cool and GBP/USD fell below the 1.60 level. The pound then found some composure and gained up to 1.6045 as US initial jobless claims rose to 283K vs 266K from the previous month and manufacturing PMI came in below expectations with a reading of 56.2 vs 57 exp. This morning sees the release of UK GDP for Q3, while in the afternoon we have US new home sales for September. We open today with GBP/USD at 1.6030.

Euro:

GBP/EUR - The euro began the day on the rise against sterling, despite weaker than expected manufacturing and service PMI data from France. BoE member Ben Broadbent’s speech to the society of business economists conference, plus higher than predicted manufacturing and service PMI from the eurozone, fuelled euro gains ahead of the UK retail sales numbers. Much of the damage was already done before the UK release, as the pair fell from an overnight level of 1.2690 to 1.2650, with a further 15 pips was shaved from the rate following the UK data. The single currency’s gains were short lived however, and GBP/EUR was back up to 1.2670 by the end of the day. Today, we now look to UK GDP readings for direction with annualised GDP predicted to show a fall from 3.2% to 3.0%. We open today with GBP/EUR at 1.2675. EUR/USD - Bullish European manufacturing and service PMI, combined with poor US economic data, lifted euro-dollar higher through yesterday’s sessions. The day opened with EU manufacturing PMI printing a reading of 50.7 vs 49.9 exp, while Service PMI posted 52.4 vs 52 exp, helping the pair raise half a cent to 1.2675. Despite the afternoon’s worse than expected US jobless claims and manufacturing PMI the dollar seemed to be regaining a little ground and the pair fell to 1.2635. By the end of the day however, EUR/USD rose back towards 1.2650. Data is thin on the ground from both Europe and the US today, with only US New Home Sales for September being of note. We open today with EUR/USD at 1.2640.

Aussie and Kiwi Dollars:

The commodity linked Aussie and Kiwi dollars are broadly weaker against both GBP and USD, as poor overnight trade balance data from NZ and continuing concerns in global growth weigh on the higher yielding currencies. The surplus in New Zealand's YoY Trade balance fell from $2.02Bn to $0.65Bn while MoM figures printed $-1,350M vs $-700M exp. AUD/USD dropped from above 0.8780 to hit overnight lows of 0.8730 while NZD/USD fared a little better, falling from 0.7850 to 0.7815. The disappointing UK retail sales numbers did see GBP down against AUD and NZD, falling to lows of 1.8210 and 2.0370 respectively, but today we open with GBP/AUD at 1.8306 and GBP/NZD at 2.0480.

Data releases for the next 24 hours:

AUD: No Data

EUR: Italian Retail Sales (YoY & MoM) (Aug), Italian Wage Inflation (YoY & MoM) (Sep), Italian Consumer Confidence (Oct), Belgium Leading Indicator (Oct)

GBP: Gross Domestic Product (YoY & QoQ) (Q3), Index of Services (3M/3M) (Aug)

NZD: No Data

USD: New Home Sales Change (MoM) (Sep), New Home Sales (MoM) (Sep)