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'Better than expected' retail sales figures provides respite for sterling

Published:  22 June, 2012

Monthly retail sales data released yesterday were much better than expected providing some respite for sterling, but the state of the UK's economy remains extremely fragile.

Currency rates - June 22

This week - (Last week)
EURO/GBP 1.2436 - (EURO/GBP 1.2302)
US$/GBP 1.5596 - (US$/GBP 1.5534)
CHF/GBP 1.4941 - (CHF/GBP 1.4778)
CAN$/GBP 1.6041 - (CAN$/GBP 1.5903)
AUS$/GBP 1.5554 - (AUS$/GBP 1.5512)
ZAR/GBP 13.0567 - (ZAR/GBP 13.0204)
JPY/GBP 125.34 - (JPY/GBP 122.56)
HKD/GBP 12.103 - (HKD/GBP 12.0542)
NZD/GBP 1.9828 - (NZD/GBP 1.9834)
SEK/GBP 10.9446 - (SEK/GBP 10.901)
AED/GBP 5.7259 - (AED/GBP 5.7051)
US$/EURO 1.2531 - (US$/EURO 1.2624)
INR/GBP 89.141 - (INR/GBP 86.61)

Sterling has had a mixed week as global risk sentiment shifted following the Greek elections and announcements from the UK's and US central banks. At the beginning of the week lower than anticipated inflation figures drove sterling weaker as speculation grew that next month could bring another round of quantitative easing. This speculation increased as the minutes of the Bank of England's last meeting were released and they showed a five-to-four vote to keep quantitative easing unchanged in June, a big change from last month's eight-to-one vote implying that policy makers sentiment towards injecting more money into the economy has increased significantly.

The euro had a strong start to the week following the Greek elections on Sunday.  A"pro-bailout" coalition government has been formed between the New Democracy, Pasok and Democratic Left parties ending the current round of political uncertainty. Spanish benchmark 10 year bonds yields hit a euro era high of 7.285% this week stoking fears that a full Spanish government bailout may be required; but, yields dropped as the week progressed. Weak services and manufacturing data was released yesterday across Europe demonstrating that the region remains in recession. Today, German business climate figures are released; furthermore the Economic and Financial Affairs Council (ECOFIN) meet to discuss the current state of the Eurozone economy and the potential policies that could be implemented.

The US dollar had a strong end to the week benefiting from increased risk aversion and its safe haven status. The Federal bank decided to expand its "Operation Twist" program (selling short dated bonds and buying long dated bonds to lower long term interest rates) by $267 billion; but, this came instead of introducing a new round of quantitative easing which disappointed the markets somewhat. Poor data from the US came in the form of much worse than expected figures from manufacturing data whilst home sales also dropped. On a more positive note, the number of new residential building permits granted grew by slightly more than anticipated. It is a quiet day on the data front; but, the markets remain extremely jittery.

Elsewhere, the main news this week was the Chinese manufacturing (PMI) dropped to an eight month low stoking fears that growth is slowing in world's second largest economy. Other data released showed that quarterly GDP data from New Zealand was much better than expected. The main data on the agenda today is inflation data from Canada.

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