UK: Sterling's slide for its fifth consecutive session - BBH

Research Team at BBH, suggests that in an otherwise uneventful foreign exchange market, sterling's slide for its fifth consecutive session is the highlight.  

Key Quotes

“It was pushed below $1.30 for the first time since July 12.  Initial resistance for the North American session is seen near $1.3020, while the $1.2960 area corresponds to a minor retracement objective.  

Sterling has been sold off since the middle of last week.  Today's data may have simply provided a little more ammo for what the market was already doing.  There were three reports today:  BRC sales, industrial production, and the trade balance.  The BRC sales figures are for July, while the other two reports cover June.

The BRC sales for stores open a year was an unexpected pleasant surprise.  Sales rose 1.1%, the most since January.  Expectations were biased for a second consecutive decline.  This report seemed to contradict the CBI survey.  Price cuts and favorable weather were cited as drivers for the BRC gains.

The other reports disappointed.  Industrial output rose 0.1% in June, but the May series was revised to a 0.6% decline rather than a 0.5% fall.  Manufacturing itself failed to recover, falling 0.3% after a revised 0.6% drop (from -0.5% initially).  

Separately, the UK reported its largest merchandise trade deficit (GBP12.4 bln) since March 2015, and the May series was revised to show a GBP11.5 bln deficit instead of GBP9.88 bln.  The trade deficit with non-EU countries widened to GBP4.16 bln from a revised GBP3.56 bln, which is about a billion pounds larger deficit than initially reported.  

The UK's overall trade deficit was twice as large as the Bloomberg median forecast (GBP5.08 bln vs. GBP2.55 bln), and the May deficit revision nearly doubled the initial estimate (GBP4.23 bln from GBP2.26 bln).  The trade report, more than the industrial output figures, may spur a downward revision in Q2 GDP.  It also warns of the large external funding needed.

It does seem that at least initially since the referendum, there have been a few dozen foreign acquisitions mooted.  However, at least some of those deals seemed to have been made more attractive by sterling's slide.  A further depreciation of sterling may be needed to continue to attract direct and portfolio capital.”