Poor retail sales figures sees sterling extend losses

Published: 28 March, 2011

Sterling held around its lowest exchange rates of 2011 against the euro on Friday.

Currency rates - March 28.

EURO/GBP - 1.1379

US$/GBP - 1.5998
CHF/GBP - 1.4744
CAN$/GBP - 1.5702
AUS$/GBP - 1.5566
ZAR/GBP - 10.9675
JPY/GBP - 130.69
HKD/GBP - 12.4835
NZD/GBP - 2.1276

SEK/GBP - 10.2489
US$/EURO - 1.4154

The UK currency was poised for further falls due to concerns about UK economic growth and uncertainty over the timing of an interest rate hike by the Bank of England. Poor retail sales figures also saw sterling extend losses that began with UK growth forecasts being cut by Chancellor George Osborne in last week's Budget. At the beginning of last week, markets had been pricing in a rate hike of 0.25% as early as May, but following the growth downgrade and Bank of England minutes that showed a reluctance to hike rates, this expectation has been pushed back to August. Out this week, we have mortgage lending figures, final GDP figures for the 4th quarter and house price data towards the end of the week.

In the euro zone, the euro lost ground this morning as German Chancellor Angela Merkel's CDU party lost a key regional election. Last week's European Summit didn't throw up any surprises and there seems to now be some certainty with regards to the European stability fund. Portugal may be the next in line for a bailout so the markets will be keeping a close eye on things. ECB President Jean-Claude Trichet speaks later today, and with an interest rate hike due in April we could see some volatility.

In the USA, GDP figures were revised upwards on Friday showing that the economy grew by 3.1% in the 4th quarter of last year, up from the previous estimate of 2.8%. The key releases today could have quite a significant impact - personal spending was poor in January and pending home sales are expected to show a steep rebound following poor figures in January.

Elsewhere, as market panic subsides after the Japanese earthquake and tsunami, Japanese yen volatility is falling too. The Japanese yen/ Australian dollar "carry trade" (i.e. borrowing cheap yen to fund investments in the higher yielding Australian dollar) picked up again last week as investors returned to more trading patterns. Progress on the nuclear reactor helped in this respect also. Libya is still a big issue also, so make sure you are protected by speaking to one of the team sooner rather than later.

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