Sterling rumbles on after positive retail sales

Claire Hogarth22/May/2014Currency Updates

GBP

Sterling hit fresh highs across the board yesterday after shooting up around one percent. Gains were seen against major and minor pairs, achieving 16 months highs on the euro, 5 year highs on the dollar and paring back losses from last week against the rand and rupee.

The latest extension of this week’s bull run came off the back of strong retail sales from the UK. Data showed consumers spent 1.3% more in the shops than last month and 6.9% more than this time last year. Expectation was only for 0.5% and 5.2% respectively. Retail sales are traditionally a good marker of consumer sentiment, particularly those on middle or lower incomes with a higher propensity to spend ratio, which could mean that the economic recovery is finally trickling down to the large consumer base.

The MPC vote count showed that all 9 members voted in favour of holding rates steady, while the minutes gave nothing particular away.

The key today will be UK GDP, expected at around 3.1% QoQ for Q1.

EUR

In a similar story to Tuesday, a lack of data from the Eurozone left the single currency at the mercy of the market, and again it suffered heavily against the pound, falling to 16 month lows.

There was one small note of compensation yesterday, as consumer confidence across the EU fell by 7.1, with 8.2 having been called.

The EU goes to the polls today to elect the new Parliament and Commission President. The President of the European Central Bank, Mario Draghi, is however safe until 2019, as he is not directly elected but appointed to fixed 8 year terms by the European Council.

Today is a more important day, with Markit PMIs for manufacturing and services released. No other important data to be aware of.

USD

The dollar also suffered a setback in its resurgence against the pound, falling back to those 5 year lows we saw last month.

Fed minutes from April’s meeting were unusually brief, as there was limited discussion on, and no change to the economic outlook. Instead there was an interesting discussion on the Fed’s exit strategy from easy monetary policy, as well as how long to rollover existing debt and reinvest the balance sheet. We could see some forward guidance on this point in the near future.

Today could provide the greenback with some fuel for the fire of resistance, as initial and continuing jobless claims for last week are announced. A respected high frequency account of the health of the labour market, unexpected values in these figures can often lead to pivots.

We also have a Markit manufacturing PMI, as well as some housing market data.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.