The Pound rallied to the highest level in more than three weeks versus the Euro yesterday while the UK currency also enjoyed a strong intraday move against the Dollar after a report showed that retail sales in May rocketed by the most since records began in 1986.
The report from the Office of National Statistics showed that sales rose 3.5% from April, the most since the series began almost 22-years ago, and that’s despite forecasts of a further 0.1% drop.
Record high food and energy costs combined with the warmest May on record conspired to bring sales to an astonishing 8.1% year-on-year last month despite tighter lending conditions and falling home values.
The unexpected resilience in consumer spending comes in the aftermath of a statement of the Governor of the Bank of England, Mervyn King, who stated that policy makers won’t flinch in their fight against inflation and are prepared to let British living standards slip.
The report on sales yesterday will provide some much needed support to the MPC and the Pound rallied against all of the 16 most actively traded currencies amid speculation that policy makers will raise interest rates over the coming months despite fears that a quarter point increase could propel the economy towards a recession.
The Dollar rallied against the Euro yesterday for the first time in four sessions as the significance of the unexpected surge in UK retail sales led traders to sell the Euro into the U.S currency and buy back the Pound.
The Dollar subsequently increased 0.2% versus the Euro and clung on to those gains despite reports that manufacturing in the Philadelphia region contracted by more than anticipated in June as orders continued to weaken.
The Philly Fed index dropped to a reading of 17.1 in June to record the seventh consecutive month of contraction as the worst housing slump in 17-years cut production while a slump in consumer spending has weighed on demand for durable goods.
Factories have been forced to cope with record high oil prices and the report yesterday showed that a gauge of raw material expenses surged to the highest level in nearly 28-years, which indicates that rising prices are hurting profits and causing job cuts.
Data Released 20th June
GER 07:00 Producer Price Index (May)
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