Sterling Rallies after Upbeat Retail Sales

Miltiadis Skemperis

Currency Solutions

The Pound surged against the US Dollar today, hitting above $1.30 after UK Retail Sales for April surpassed expectations. After March sales dropped by 1.4%, the news that April’s figures were up by 2.3% shows a resilient UK economy. Sterling is expected to continue strengthening today on this hat trick of good data, after the CPI and employment releases were also better than expected.

The US Dollar is recovering slightly today, on the news that the US Justice Department appointed former FBI chief, Robert Mueller, as Special Counsel to investigate Russia’s influence in President Trump’s election campaign. Yesterday, the US market and the Dollar fell sharply on news that Trump might be impeached over a charge of obstructing justice.

Pound Sterling – UK Markets

On Thursday, the Pound to US Dollar broke the $1.30 barrier for the first time since September 2016. Sterling capitalised on the far better than expected retail sales data release.

UK retail sales rose by 2.3% in April, compared to a 1.4% fall in March. On a year on year basis, retail sales in April rose by 4%, double the expected 2%. Analysts suggest that the warm Spring weather and Easter played a significant role in the increase. The retail sales figure itself is the best since the beginning of 2016 and probably, will calm down fears of a slowdown in consumer spending.

Traders were anticipating the Pound’s rise, but rising inflation and stagnating wage growth seemed to put it off. The positive retail sales figures, will fuel hopes that the UK economy is ready to put in a strong performance for the second quarter of the year.

The Pound to Euro exchange rate increased by 0.65% with the rate set at €1.17. The single market currency was unable to resist the Pound’s good performance. Analysts suggest that positive economic data releases, such as today’s retail sales figures, increase the possibility of an earlier than expected interest rate rise from the Bank of England.

US Dollar – US Markets

The US Dollar managed to recover small ground against the Euro, after being cornered for 5 consecutive days. The exchange rate between them was set at €0.89. The US currency rebounded after the US Dollar Index slid to its lowest level since Donald Trump was elected president last November.

Traders were calmer and noted the appointment of former FBI director Robert Mueller as Special Counsel to lead the investigation of Russian involvement in Donald Trump’s election win. Citi analysts suggested that, because Special Counsels take months to conclude their investigation, the markets will try to stabilise in an environment of uncertainty.

Mohammed El-Erian, one of the most famous economists in the world and chief economic adviser to Allianz, expressed his fear on the news coming from Washington’s political scene: “Markets are alerted to the rising implementation risk associated with the pro-growth policies. The more this occurs, the greater the downward pressure on stocks, the dollar and government bond yields.”

Euro – European Markets

The Euro lost ground against both Sterling and the US Dollar. The single market currency traded at £0.85 and $1.11, respectively. The Euro rally against the US currency stopped after the rate was driven upwards for 5 days in a row.

Today, traders and investors will focus their attention to speeches delivered in Frankfurt, by ECB members, such as Jens Weidmann, the president of the German Federal Bank, and Ewald Nowotny, who is the governor of the National Bank of Austria. The president of the ECB, Mario Draghi, will be speaking at the University of Tel Aviv, and markets will be searching for signs of a potential shift in strategy regarding the monetary stimulus.

Earlier in the morning, Bernard Coeure, an executive member on the board of the ECB, said that an interest rate hike is possible, if negative rates hurt lending. He also suggested that the ECB shouldn’t wait too long before taking away the support.

Other Currencies – Highlights

The Australian Dollar rallied against the Pound, gaining 0.5% in value, reversing yesterday’s losses and setting the exchange rate at 1.73 AUD. The Aussie strengthened on good news coming from the Australian labour market. For the second consecutive month, the unemployment rate fell, dropping to 5.7%, spreading optimism to analysts who believe that this may act to stem the decline in consumers’ confidence.

The New Zealand Dollar remained stable against Sterling, with the exchange rate set at 1.86 NZD. Unlike its Australian counterpart, the Kiwi showed little reaction, to a report which said that consumer confidence had risen strongly in May. Another published survey, said that 16% of citizens think that their family finances are better than a year before, which is the highest percentage since the global financial crisis of 2008.