Sterling hit the high notes again yesterday morning – although without breaking any new ground after Wednesday’s six-month high – before declining against the euro in the afternoon session. This morning it sits around 0.3% off its strongest point of the week, but still 1.6% up on last month, boosted by better than expected retail sales.
Against most other currencies yesterday sterling managed to hold onto its gains, but ends up slightly down on both the week and month against the US dollar.
Driving sterling has been a daily dose of economic data this week, which for the UK at least has shown a more positive economic picture in terms of the economy and consumer confidence, but inflation that is proving hard to beat.
Working through some of that data, on Tuesday we had the Purchasing Managers’ Index (PMI) depicting UK services still growing fast but manufacturing in the doldrums. On Wednesday, UK the headline rate of inflation fell from 10.1% to 8.7%, but delving deeper into the numbers it was obvious that this was not enough and interest rates rises may have to continue. The IMF tore up its old forecasts and accepted that the UK economy is still growing.
And this morning we have had retail sales showing that sales especially of non-food items rose in April, with items like sports goods, jewellery and watches rising fast.
Over in Germany the picture is very different. The German economy was confirmed as being in recession, with a second quarter of shrinking GDP, but with Gfk Consumer Confidence improving for an eight consecutive month, although still negative.
However, the main event going into next week will be the debt ceiling talks in the US. Without agreement between Republicans and Democrats by Thursday (1st June) the US government will be unable to pay its bills with potentially large impacts overflowing into the currency markets.
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