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Retail Sales Boost the Pound

The Euro surrendered early gains yesterday and fell against the dollar during a day of technical trading after again failing to hold above a key psychological level. The market was mostly range bound with no major breakouts from any currency pairs.

The euro had rallied yesterday for the third straight day against the dollar after a German government bond auction attracted solid demand, easing some concerns about fiscal instability in the European Union. The positive move lasted throughout the European session but was driven back down again after the American market opened.

After falling to a three-week low yesterday morning against the US dollar sterling recovered ground against the US currency after the minutes of the BOE’s last policy meeting were published. The minutes showed that Andrew Sentance continued to be the lone voice on the committee calling for an increase in rates to 0.75%, allaying fears that the committee would show a 3-way split.

The committee noted that it saw ‘substantial’ risks to inflation and ‘stood ready to respond in either direction as the balance of risks evolved’. Investec Securities commented that ‘sterling is probably a bit firmer on the fact that there wasn’t a vote on further quantitative easing’. This statement was followed by ex member of the BOE Blanchflower’s comment that both the US and the UK will have to add more quantitative easing sometime soon.

The pound is still technically in an upward trend against the Euro with support in the market seen at 1.2080 GBP/EUR. Buyers with a requirement in the near term are certainly advised to secure partial amounts at these rates. The Euro-zone is still looking relatively strong and if the sovereign debt risk can be eliminated then we might well see it regain previous highs against the pound.

Retail sales figures this morning showed that the UK economy is in quite rude health. The posted figure was well above the forecasted 0.3% growth, posting in above 1% today which allowed the pound to shoot up 1 point against the Dollar within half and hour, the pound also rose almost a point against the Euro during the same time scale. The rise in retail sales has been largely attributed to the online sales sector. Money supply figures for the UK have also shown a rise which can only help to add liquidity to a burgeoning economy.