Tuesday, 12 April 2011

Pound at 5 month low vs Euro; Retail Sales & Inflation

12th April 2011
Good morning. Sterling has hit a 5 month low vs the Euro this morning as investors bet that UK interest rates would continue to lag those in the euro zone. We have also seen the worst fall in Retail Sales on record that has also pushed the pound lower this morning. Today we have a raft of important inflation data that could further hurt Sterling. At 08:30am this morning rates are as follows:
  • GBP/EUR 1.1299
  • GBP/USD 1.6292
  • GBP/AUD 1.5555
  • GBP/NZD 2.0823
  • GBP/CAD 1.5591
  • GBP/CHF 1.4718
  • GBP/ZAR 10.886
  • GBP/JPY 137.07
  • GBP/DKK 8.4221
  • GBP/NOK 8.9110
  • GBP/HUF 300.29
  • EUR/USD 1.4417
Sterling at 5 month low vs Euro

Diminished expectations of a Bank of England rate hike in May were likely to keep sterling under pressure after the BoE left rates on hold at 0.5 percent last Thursday. The ECB in contrast are likely to raise rates further before the UK. As a result the Euro is much stronger than the pound, and more expensive to purchase.

"The underlying story is that people are losing confidence in the May rate hike in the UK, and have pretty much moved their expectations out to August now. The (inflation) data is going to be the key issue," said Adrian Schmidt, currency strategist at Lloyds TSB.

Biggest fall in UK Retail Sales on record

The British Retail Consortium (BRC) has recorded its worst fall in sales since records began in 1996, a further sign of difficult times on the High Street. The BRC pointed out that "uncomfortably high inflation and low wage growth have produced the first year-on-year fall in disposable incomes for 30 years".

The bad figures have pushed the pound much lower this morning, back into the €1.12's vs the Euro.

Today's Data

Lots of UK data today so expect GBP volatility. We have Nationwide Consumer Confidence, Trade Balance figures, Retail Price index, Consumer Price Index and House Prices. For the Eurozone we have some inflation data and economic sentiment data. From the USA there are Trade Balance figures and import price data.

The inflation figures at 09:30am are particularly important, as it will indicate how likely an interest rate hike is in the UK any time soon.

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