Pound uncertain as consumer confidence returns to post-Brexit low

UK households are not feeling positive about the economic situation at present. That was the finding of the latest GfK consumer confidence survey, released at midnight on Friday.

GBP/EUR had approached the weekend at a low of €1.1153, but a quick last-minute rebound means the pound has started this week at €1.1172. GBP/USD is already down at US$1.3112, a decline of -0.2%. The pound has also weakened by the same amount against the New Zealand and Canadian dollars, with GBP/NZD at NZ$1.7484 and GBP/CAD at CA$1.6338.

UK consumer credit figures could cause a stir this morning. Read on to find out why…

What’s been happening?

The pound was on mixed form on Friday, although considering the results of the latest data GBP was escaping quite lightly.

Consumer confidence data from GfK showed that household pessimism has now fallen to the level last seen shortly after the results of the Brexit referendum were announced.

The GfK sentiment index weakened from -10 past the forecast -11 to hit -12, with Joe Staton, the company’s Head of Market Dynamics, stating ‘All bets must now be on a further drift downwards in confidence’.

A string of positive data releases from the Eurozone saw the GBP/EUR exchange rate falling as the day’s market activity came to an end on Friday.

Sentiment towards the currency bloc economy hit a ten year high in July, with the economic confidence indicator climbing from 111.1 to 111.2 instead of falling to 110.8.

French GDP clocked in at 0.5% in the second quarter, while growth of 0.9% for Spain meant the nation’s economy had returned to the level seen before the financial crisis.

The good news kept on coming in the afternoon, after German consumer price index figures bettered forecasts.

Prices grew 0.4% in July - twice the pace forecast - pushing year-on-year CPI up from 1.6% to 1.7%, despite forecasts of a weakening to 1.5%.

Meanwhile, disappointing second-quarter US GDP figures allowed the GBP/USD exchange rate to notch up strong gains.

Annualised second-quarter growth was expected to clock in at 2.7%, but instead hit 2.6%, with the first quarter’s growth rate revised down to 1.2%.

What's coming up?

The day’s UK data consists of net consumer credit and mortgage approvals figures for June.

Considering the combination of weak wage growth and low interest rates has raised concerns over the extent of UK household borrowing, strong signs of credit demand may weaken the pound.

GBP/EUR could be set to decline further today if the Eurozone consumer price figures for July mirror the German figures to rise above-forecasts.

This is likely, given that Germany is the currency bloc’s largest economy, so will have had a strong influence on the overal figure.

This may push up bets that the European Central Bank (ECB) will be feeling confident enough in autumn to start discussing ways in which they could remove some of their monetary stimulus package; likely to result in a decision to taper quantiative easing in the near-term.

Meanwhile, if odds that the Federal Reserve will leave interest rates on hold in December this year remain around Friday’s 56% mark, the GBP/USD could make more gains, as there is no US data on the calendar today.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.