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Pound Rises on Strong Retail Sales Data

The minutes from the Fed’s 28-29th April meeting were published yesterday. A tonne of minutes, as expected, were quite reserved. The main message to the markets was that the Committee feels it unlikely that interest rates will be put up in June, taking into account the incertitude towards prospective economic growth. At the same time, expectations about whether the indicator will rise in the second quarter are rather doubtful. The dollar had a slight increase against other key pairs.

According to today’s data, HSBC’s preliminary Purchasing Managers Index for the Chinese manufacturing sector, which is an indicator for industrial activity in the country, has seen a rise for May to 49.1 against the definitive value given for April at 48.9. Despite the indicator being lower than the critically important marker of 50 points, a slight increase on the value for April has somewhat quelled investor worries about Chinese economic growth; something that has been doing the rounds over the last few weeks. China is the world’s second largest oil consumer. According to the USA’s Department of Energy (DOE), in 2014 China even pipped America to first place as the biggest net importer of oil.

Today the price of oil has increased to $65.85 for a barrel of Brent (at the moment of writing this review). This can be put down to the DOE’s report which showed a 2.7 million barrel fall in commercial reserves of oil between 9-15 May.

Data for business activity in the European manufacturing sector was published today. The Eurozone May PMI didn’t meet expectations and fell to a three-month minimum of 53.4 in comparison to April’s 53.9, signaling that the economies of the region couldn’t quite pick up the pace after reasonably successful first quarter results. This is even despite the ECB’s quantitative easing programme.

Growth in the index slowed in Germany yet sped up in France. Last week, the EU’s statistical agency published data which showed that Eurozone economies’ growth in Q1 sped up, but in Germany it fell sharply and, as we can see, this has been the case in Q2.

There was a positive balance of payments in the Eurozone and an increase of 18.6 billion euros for exports and investment flows in March of against 27.3 billion in February; a figure which was revised upwards.

According to the statistics, UK April retail sales increased 1.2% in comparison with the previous month and are up 4.7% on the figures for last year. The report is significantly better than expected, giving grounds to suppose that the country’s economy could grow at a decent rate over the second quarter of 2015. Strong indicators for retail sales mean that UK consumers will probably be a decisive factor in getting the British economy’s engines pumping. Furthermore, they reduce worries that deflationary pressures, which were observed in April and are the first in the country for over 50 years, can force households to postpone spending.

The pound grew sharply on the back of this news, reaching 1.5688 against the dollar and 0.7116 against the euro. Tomorrow, the Bank of England’s Mark Carney will give a speech, as will the ECB’s Mario Draghi. What they have to say could have an effect on the currency pairs.

Today it’s worthwhile looking at the ECB’s report from their meeting concerning European monetary policy. The US’ publication of values for initial unemployment benefit applications, the number of housing sales in the secondary market and the Philadelphia Reserve Bank’s manufacturing index are all worth a glance. Other than that, Mario Draghi will give a speech, as will the Vice-Chairman of the US Federal Reserve, Stanley Fisher.

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