Morning Brief – Silver lining

Morning Brief – Silver lining

Tue 9 Aug 2022

Silver lining

With the US Dollar seemingly incapable of doing anything wrong almost any currency (bar Russian Ruble of course) can seem to shine when compared to its traditional benchmark, the greenback. Amidst the currencies struggling with the surging value of the US Dollar there is still considerable displacement creating winners and losers in the post-Covid environment. As we discussed yesterday, the non-farm payrolls in the US published last Friday yet further reinforced the hegemonic position of the US Dollar. Many data releases in countries including the UK and currency areas such as the Eurozone are failing to deliver such flattering numbers. Despite that, in the doom and gloom of the statistics, there could be a silver lining.


In the UK, retail sales were shown to have grown year on year at +2.3% in July. This may seem positive but for a metric comparing the value of goods purchased in the retail space at two different time periods, it’s easy to see how inflation can mask the true health of the retail sector, a near-perfect proxy for consumption in the economy. Over this same period we know consumer price inflation, concerning a near identical basket of goods in an economy, grew by far more, meaning the real value of spending likely contracted.


Underwhelming real retail spending may undermine the currency in the short run. However, this may not be a bad thing, after all the whole point of the tighter monetary policies we are seeing created at the Bank of England are designed to do just that, restrict credit such that the price level via the demand function moderates in the economy. This has further brought into question just how the market is digesting data at such a volatile time as discussed by Humphrey yesterday.


For the remainder of the week, we have publications expected from some Eurozone countries and the US regarding their respective rates of inflation. Towards the latter end of the week, the data focus will switch to growth and employment with key observations being published in the UK and US. As we have seen with recent data releases, as uncertainty in the economy rises and the gap between forecast and reality often widens, we can expect potential volatility during these releases.




Discussion and Analysis by Charles Porter

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