Sterling powered to a two-month high against the euro and erased much of this week’s loss against the dollar yesterday, after data showed British retail sales rose more strongly than expected in April. The pound had taken a knock from a fall in inflation below zero for the first time since 1960 in April and the sales figures eased concerns that a slowdown in growth in the first quarter might be the start of a longer period of weakness. By late afternoon sterling was up more than 0.8 percent on the day at $1.5665. Against the euro, itself up around a quarter of a percent against a weaker dollar, it gained half a percent to 1.4009. With the recent uptick in the housing market after a winter lull, and consumer confidence at its highest for several years, analysts say there’s good reason to be upbeat about the outlook for consumer spending. Retail sales volumes rose 1.2 percent on the month, the strongest increase since November, to show 4.7 percent growth on the year and exceed economists’ expectations of a 3.8 percent year-on-year rise. “Euro/sterling has continued to slide this week even following a weak (UK) CPI release, suggesting that markets are now more inclined to rebuild euro shorts and we expect to find euro/sterling sellers on rebounds,” BNP Paribas strategists said in a research note.
The euro inched up against the dollar yesterday, halting a four-day skid, as the timing of an interest rate hike by the Federal Reserve and the prospect of a Greek default on its sovereign debt remained in focus. The pair gained .0017 or 0.15% to 1.1150, trading in a tight range of 1.1081 and 1.1181. One session earlier, the euro fell below 1.11 against the dollar for the first time in the month of May. EUR/USD opened the week at 1.1447. In Europe, Markit’s Services PMI fell sharply from 54.1 last month to 53.3 in May. Analysts had predicted a reading of 53.9. Markit’s euro zone Manufacturing PMI index inched up from 52.0 to 52.3, but its Composite index fell to 53.4 from a reading of 53.9 in April. Yields on 10-year government bonds in Europe were relatively unchanged ahead of the meeting in Riga. German 10-year bunds increased modestly on Thursday by one basis point to 0.64%. Yields on 10-year German bunds are up by more than 50 basis points on the month. By comparison, the yield on U.S. 10-year Treasuries fell more than five basis points on the session to 2.195%.
The dollar edged lower versus a basket of major currencies in eatly trading this morning in the wake of unimpressive U.S. economic data, with investors awaiting speeches by major central bankers. The dollar index slipped 0.2 percent to 95.117, having backed off from Wednesday’s peak of 95.837, its highest level since the 5th May. It is still up 2 percent on the week, putting it on track for its first weekly gain in six weeks. Analysts said the index’s inability to break above its 100-day moving average, currently around 95.620, was keeping a lid on the dollar. Against the yen, the dollar sagged slightly after the Bank of Japan maintained its massive monetary stimulus, as expected, and slightly revised up its assessment of the economy, signalling that it sees no need to expand stimulus again on the near-term horizon. The reaction was subdued, however, with the dollar last down 0.2 percent on the day at 120.82 yen, compared to around 120.90/95 just ahead of the BOJ announcement. Going into the weekend, the dollar was pegged back after disappointing U.S. data on Thursday. Home re-sales fell in April and the strong dollar pressured manufacturing activity in May, although the labour market continued to tighten and the U.S. economy apparently remained on a modest growth track.