Surprise Sterling Strength Offers Early Opportunity
Amplifying the suspicions that the Bank of England will engage in further easing, UK retail sales were much lower than analysts had previously predicted, coming in at -0.8%. High inflation was the implied cause for the decline, as the higher cost of food and clothing made these items less affordable.
In a catch 22 scenario, these low retail sales further suggest that another round of stimulus is needed to pump up the economy, and although not demand-driven, Mervyn King will have to pay heed to the threat of rising inflation.
As a consequence, yesterday sterling declined against most of its peers, hitting a two week low against the euro. The yen, one of the few currencies to underperform the pound, saw huge weakness as front runner in Japanese elections, Shinzo Abe, intimated that he would back unlimited asset buying schemes until Japan showed improvement.
This morning in a sharp contrast to yesterday’s trading; sterling has shown sharp strength recouping some of the day’s losses in a surprise move. This could represent a good opportunity to make foreign currency purchases if the previous downward trend is revisited.
Today’s Key Announcements:
- 09.00am – EUR – Current Account: expected at 9.2b
- 14.15pm – USD – Industrial Production m/m: expected down at 0.2%
See previous Daily Market Reports