Sterling rose to just shy of a high for the month last week after a series of strong data releases seemed to take the edge off Brexit concerns.
No material change happened in the outlook for Brexit, the Labour Party confirmed that it would call a vote of no confidence in early September, and called for the formation of a caretaker Government to extent the October 31st deadline.
Tuesday’s jobs report showed the UK labour market remains in cracking shape despite business investment grinding to a halt and growth turning negative in the second quarter.
Net job creation totalled 115,000 in the three months to June, almost double the median forecast on Bloomberg. Average Weekly Earnings excluding bonuses grew at 3.9%, the highest rate since 2008.
The strong beat on Average Weekly Earnings ex bonuses is particularly encouraging and supports the Bank of England’s relatively optimistic base case for the economy, where wage growth supports consumer spending continued and the economy as a whole.
Retail sales data further supported this idea. It would seem UK consumers still don’t give a fig about Brexit, and remain more than willing to spend their real wage increases. Thursday’s Retail Sales report also smashed expectations with July sales rising 0.2% vs expectations of a contraction.
Chart: Sterling rallies on strong data
Copyright: Bloomberg Finance LP
Johnson and Trump to cosy up in the south of France
Aside from CBI data on Industrial Orders on Tuesday and Realized Sales on Thursday, this week’s calendar offers few opportunities for further upside surprised in UK data. Instead, Brexit is likely to return to the fore for sterling ahead of the G7 Summit in Biarritz, France.
The summit will not begin until Saturday but seems a possible catalyst for a potential breakthrough in Brexit – or a further confirmation that the Johnson Government is heading for no-deal.
The Times reported last week that Donald Trump would publically snub European officials by meeting Boris Johnson first, raising the possibility of warm words and promises of a trade deal.
The two administrations do certainly seem to be making friendly noises, as the past two weeks have seen senior US officials such as Mike Pompeo and John Bolton describe the UK as being at the front of the que for a trade deal.
Whether or not an exchange of nice words translates into another leg up for sterling remains to be seen…