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.

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%