Euro slides on soft PMIs, Pound recovers on retail sales data

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18 April 2019


Another very disappointing set of business activity PMIs sent the Euro sharply lower this morning.

he common currency sank by around 40 pips on Thursday morning, briefly falling back below the 1.125 level against the US Dollar on compounding fears that a recession in the Eurozone could be on cards this year. The preliminary PMI numbers for April all fell short of expectations. The manufacturing index remained deep in contractionary territory at 47.8 versus the 47.9 priced in, while the services index fell much more-than-expected to 52.5. This ensures that overall activity, as measured by the composite index, is now at its third weakest level since November 2014.

While these numbers do not necessarily indicate that a Euro-area recession is on the immediate horizon, the recent downward trend in growth is a concerning development and is likely to keep the ECB on the sidelines for some time yet. Germany’s manufacturing sector remains a particular cause for concern and a real Achilles heel to the bloc’s overall economy.

UK retail sales rise sharply as consumers shrug off Brexit

A contrastingly more upbeat set of economic figures out of the UK helped the Pound recover ground against the US Dollar this morning.

Sterling initially sold-off to its weakest position in two weeks, dragged lower by the decline in the EUR/USD rate. A surprisingly robust set of retail sales figures did, however, allow the currency to reverse around half of these losses. Retail sales jumped by 1.1% month-on-month in March and by 6.7% on a year previous, the largest increase in the measure since late-2016 (Figure 1). This is a very encouraging development that suggests consumers in the UK have been seemingly unfazed by the uncertainty surrounding the elongation of the Brexit process.

Figure 1: UK Retail Sales (2011 – 2019)

Fed members strike dovish tone, US retail sales eyed

This afternoon will also see the release of the US retail sales numbers, expected to show that consumer activity picked up pace last month following a fairly poor start to the year.

Activity has been characteristically light on the ground in the US leading up to the long Easter weekend. We have, however, had a number of Federal Reserve members making public appearances. Philly Fed member Harker stated yesterday he saw a maximum of just one rate hike in 2019 and one in 2020. Fellow policymaker James Bullard was even more dovish, stating that the US economy has not shown signs of moving towards higher productivity, higher interest rate regime.

All in all, these comments give us no reason to believe that the FOMC is in any hurry whatsoever to alter their current patient, wait-and-see approach to policy.