Pound rally halts following underwhelming retail sales data, World Economic Forum nears completion in Davos
As the final day of the World Economic Forum is underway in Davos, and following the release of key retail sales data out of the UK, the markets have been exceptionally volatile. I thought a brief update would be useful in wake of this.
World Economic Forum
From Davos, hopes that the world economy might only suffer a mild recession will be tested today, when top central bankers and policymakers take to the stage to give their assessment of the situation.
Kristalina Georgieva, managing director of the IMF, Christine Lagarde, president of the European Central Bank (ECB), and Bank of Japan governor Kuroda Haruhiko all appear on a panel on the economic outlook, alongside French finance minister Bruno Le Maire and professor Lawrence Summers.
It is widely expected that they will discuss the future of growth, and the policies needed to stabilize the global economy (10am UK).
The overwhelming expectation from analysts and central banks is that the world economy might pick up in the second half of this year. That’s despite polling suggesting business leaders and economists were notably gloomy, and signs that the engines of global growth are slowing, with more households and businesses facing economic distress.
According to Guardian Business Live, Davos delegates are also pondering how the UK’s economic outlook might change under a future Labour government, after Keir Starmer and Rachel Reeves attended Davos yesterday.
FX
GBP rates fell widely as we opened the final trading session of the week after the ONS data saw retail sales volumes fall by one percent (-1%) during December, making for the eighth time in a row that retail sales have fallen in December.
The one percent fall in the number of items sold by retailers throughout the Christmas month adds to a 0.5% decline from November and leaves sales volumes 1.7% below their pre-coronavirus level from February 2020. Demand fell the most for non-food store retailers - emphasizing the cost of living crisis and sour economic conditions for the working class.
"Food store sales volumes fell by 0.3% in December 2022 from a rise of 1.0% in November, with comments from some retailers suggesting that customers stocked up early for Christmas," Says the ONS.
GBP/EUR has reacted to the news by dropping 0.4% from open. Today's range has been between 1.1380-1.1447 with the pair currently trading at 1.1391. GBP/USD is holding lower ground near 1.2350, down 0.42% from open, underwhelmed by weak UK Retail Sales data and a corrective USD. Cable fails to capitalize on the return of risk flows, as traders reposition ahead of China's Lunar New Year holidays.
EUR/USD is trading firmly above 1.08, as it has done most of the week, awaiting ECB Lagarde's speech for fresh impetus. The pair is slightly down from open by 0.02%, however could find further demand following this afternoons Existing Home Sales from the US.
For further information, please get in touch with our team on 020 3950 4132
