May Day

Theresa May resigns

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What's going on?

UK retail sales data out on Friday showed shoots of growth – but the resignation of the country’s prime minister may leave the value of the British pound at risk.

What does this mean?

Better-off Brits have been splashing the cash: retail sales increased 1.8% in the three months to April compared to the three months before that. Uncharacteristically warm weather drove a pickup in clothing purchases, and online-only retailers saw record sales growth of 9%.

Physical sales remained gloomy: department store receipts fell 1%, while household goods retailers saw their fortunes tumble 3% as the UK’s shopping streets remain troubled. Nevertheless, overall April spending rose 5% compared to a year ago, defying concerns that Brexit would lead consumers to tighten their purse strings.

Why should I care?

For markets: Sterling’s not so precious.

The UK’s prime minister confirming her departure date was a tearful event: June will definitively be the end of May. Investors initially bought up pounds sterling, perhaps in the belief that the Brexit deadlock would soon be resolved one way or another and that Britain’s jittery economy might finally settle down. But the pound’s rise was short-lived: its value hit a four-month low against the euro amid concerns that the next British leader might be more minded to take Britain out of the European Union without a departure deal.

Zooming out: Undervaluing doesn’t go unnoticed.

Having an “undervalued” currency can bring a country some benefits. It makes local goods and services more attractive to overseas buyers, as their foreign money suddenly goes further. Some countries may take active steps to weaken their currencies for this very reason, cutting interest rates or printing more money to artificially create the same effect. But such sneaky measures are coming under increased scrutiny – particularly in the US, which announced plans on Thursday to impose extra trade taxes on nations which deliberately devalue their currencies versus the dollar. By making overseas goods more expensive, the hope is that consumers will switch back to domestically produced items.

Originally posted as part of the Finimize daily email.

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