Pound gains after good Retail Sales data

Friday 18th November 2011
Good morning. The Pound rose slightly yesterday, after unexpectedly strong UK retail sales data provided some rare good news on the economy, although the figures did little to alter the overall view that the outlook remained grim. Overnight data showing UK consumer confidence fell to a record low in October also reinforced the gloomy economic picture. At 08:30 am this morning rates are as follows:

• GBP/EUR 1.1703
• GBP/USD 1.5788
• GBP/AUD 1.5806
• GBP/NZD 2.0820
• GBP/CHF 1.4492
• GBP/CAD 1.6246
• GBP/ZAR 12.954
• GBP/JPY 121.21
• GBP/DKK 8.7069
• GBP/NOK 9.1633
• EUR/USD 1.3489

Pound gains on Retail Sales

Data released yesterday morning showed UK retail sales rose 0.6% last month, which was much better than expected as many analysts had predicted a fall. Despite the good data regarding consumer spending however, investors are bracing for more signs of weakness in the UK economy and these concerns have limited gains in the pound.

Many analysts expect the Pound will struggle to rise after the Bank of England cut its UK growth forecasts earlier this week in its quarterly inflation report. As I mentioned a few days ago, this leaves the door open for more quantitative easing where money is created to pump into the economy. This floods the market with pounds to stimulate growth but also devalues the Pound and pushes exchange rates lower.

Pound remains supported against the Euro

Despite a bleak outlook for the UK economy following the poor inflation report earlier in the week, analysts have said that the pound was likely to be supported against the single currency, given concerns of increasing contagion among euro zone sovereigns. This has been keeping the Euro weak, and rates around the €1.17 level. Without the EU debt problems, GBP/EUR rates would be around 5 points lower than they currently are.

Italian government bond yields remain around the critical 7% level, which is seen as unsustainable and also keeping the Euro weak.

Today's Data

We end the week with Canadian Inflation figures, and Producer Price Index data from Germany.

As usual on Monday I will take a detailed look at the movements in the currency markets this week, in addition to a full breakdown of economic data releases that could affect exchange rates.

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