Sterling rose to a two-week high on an unexpected surge in UK retail sales in the month after the country voted to leave the European Union.
Sterling climbed versus all of its Group-of-10 peers after the report from the Office for National Statistics suggested the hot summer is outweighing longer-term concerns over the UK’s fortunes outside the world’s biggest trading bloc.
The sales figures follow other post-Brexit numbers that have beaten analyst expectations this week, helping to boost sterling.
Inflation data, unemployment claims, and now retail-sales figures, have shown a UK economy that is outperforming expectations despite pre-referendum concern that it would slow should the country decide to leave the EU.
A more optimistic view of how the country is faring may not be filtering through to bearish investors, however, who expect further action by the Bank of England to cap any long-term sterling strength.
Futures pricing shows the chances of a rate cut at 34 per cent by the end of the year.
Volatility
"There's a lot of volatility in sales but, looking through that, retail sales appear very resilient for now," said Roberto Mialich, a senior foreign-exchange strategist at UniCredit in Milan.
“The positive number favoured a test towards $1.31, but I think probably we’ll see some reversal.”
Sterling also benefited from general weakness in the dollar, after minutes released Wednesday of the Federal Reserve’s latest meeting dampened prospects of an imminent US interest-rate increase. The UK pound rose 0.7 per cent to $1.3132 as of mid-afternoon in London, after touching the highest since August 5th.
It appreciated 0.5 per cent to 86.16 pence per euro, having reached 87.25 on August 16th, the weakest level in three years.
UniCredit’s Mr Mialich cited Bank of England monetary easing and an anticipated deterioration of the UK economy for reasons the UK currency will fall.
– (Bloomberg)
