Sterling hit two-week high as January retail sales came in high

Published: 21 February, 2011

Sterling hit a two-week high against the US dollar on Friday as retail sales in January came in far higher than expectations.

Sterling hit a two-week high against the US dollar on Friday as retail sales in January came in far higher than expectations.

Currency Rates
EURO/GBP - 1.1861
US$/GBP - 1.6231
CHF/GBP - 1.5334
CAN$/GBP - 1.5996
AUS$/GBP - 1.6036
ZAR/GBP - 11.5499
JPY/GBP - 1354.94
HKD/GBP - 12.6372
NZD/GBP - 2.1233
SEK/GBP - 10.4019
US$/EURO - 1.3682

After a disappointing Christmas period, and with January retail sales normally coming in lower, the rise of 1.9% encouraged investors to back the pound. Sterling's fortunes are very much linked to inflation and interest rate expectations. Higher retail sales figures left many feeling that the Bank of England will need to address the 4% inflation level far sooner than current rhetoric is suggesting. Out this week we have the Bank of England's minutes that will be closely watched for any hint of timescales for an interest rate hike.

In the euro zone it was a similar story with the single currency breaking above $1.37 against the US dollar to post the first weekly gain since late January. The euro's strength came as European Central Bank policymaker Lorenzo Bini Smaghi said that the ECB would hike interest rates if price pressures continued to grow. As in the UK, this saw increased speculation over rate hikes in the region and the single currency strengthened.

In the USA, the US dollar had a poor end to the week, falling against the euro and sterling on interest rate expectations. The US dollar was not helped either by geopolitical concerns in the Middle East, with concerns over Iranian warships in the Suez Canal seeing concern. It is a bank holiday in the USA today, so there was a fair amount of US dollar selling going into the long weekend that also saw the currency weaken.

Elsewhere, China raised the level of required bank reserves to a record 19.5% in order for banks to lock up more cash to combat rapid inflation in the country. It is another move by Beijing to combat inflation and further moves - especially on interest rates are likely to be taken.

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