Sterling gains after UK sales data beats expectations

Published: 20 May, 2011

Sterling gained against the euro and US dollar yesterday after UK retail sales data beat expectations.

EURO/GBP - 1.1342
US$/GBP - 1.6246
CHF/GBP - 1.4284
CAN$/GBP - 1.5687
AUS$/GBP - 1.5203
ZAR/GBP - 11.181
JPY/GBP - 132.54
HKD/GBP - 12.630
NZD/GBP - 2.0451
SEK/GBP - 10.133
US$/EURO - 1.4324

However, investors took the opportunity to take profits on the gains and as such sterling fell off from the day's earlier highs. Retail sales jumped by 1.1% in April, beating expectations of a 0.8% gain and were boosted by a number of bank holidays and the royal wedding. However, this had no impact on analyst expectations that the UK recovery would lag and the Bank of England would refrain from raising interest rates in the near future. Financial markets are pricing in a 0.25% rate rise in January of next year after the Bank of England's meeting minutes showed no change in the voting from the previous month. Despite inflation coming in higher than expected, the Bank governor said that an interest rate hike could threaten the recovery.

In the euro zone, it has been a turbulent week following the arrest of IMF chief Dominique Strauss-Kahn. Strauss-Kahn had been seen as a key player in the negotiation of a new bail out for Greece. The euro stabilised towards the end of the week though after finance ministers approved the emergency bail out loan for Portugal, passing through the decision without the help of Strauss-Kahn. However, with fears of a restructuring of the debt in Greece, the euro's gains are likely to be limited.

In the USA, the US dollar took a hit on Thursday after data showed that manufacturing growth had slowed in the previous month. In addition, existing home sales dropped in April leaving many concerned that the US recovery was stuttering. Goldman Sachs in fact downgraded their expectations over the US recovery this week, stating that the country was lagging far behind the rest of the world.

Elsewhere, the Bank of Japan unanimously voted to maintain monetary policy following a report that showed the country had slipped into recession following the recent earthquake. Many expect the economy to rebound later in the year as the rebuilding effort takes effect.

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