The British pound rose to a 1-1/2-month high on Friday versus the euro and inched towards an eight-month high against the greenback after UK retail sales numbers for July came in much higher than expected.
FILE PHOTO: A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang
Year-on-year sales rose instead of falling as in the previous month while economists polled by Reuters had predicted no growth. Month-on-month numbers also rose higher than expectations, though not as much as June.
“This is supportive for sterling and given the general weakness of the U.S. dollar, further gains for cable over the short-term are possible,” said Derek Halpenny, head of research at MUFG, adding that “there will be an obvious high level of caution in reading too much into this impressive performance.”
The recovery among British businesses from the shock of the COVID-19 pandemic quickened again in August, the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) showed on Friday.
The index shot up to a nearly seven-year high of 60.3 from 57.0 in July, far above the 50 threshold for growth, keeping sterling supported.
Sterling was last up 0.3% at 89.45 pence versus the euro, its highest since July 10. It was down 0.2% at $1.3192 versus the greenback as the dollar rose, but it remained close to $1.3276, its highest since December 2019.
“The broadly positive news will help keep the sterling rally alive, however is unlikely to have any material impact as markets drift into the weekend. Many participants will be happy to sit on the sidelines after a busy week for sterling/dollar,” said Sam Cooper, Vice President of Market Risk Solutions at Silicon Valley Bank.
The pound may be facing hurdles ahead as Brexit negotiations reveal again that Britain and the European Union are far from reaching a post-Brexit trade deal.
The latest negotiating round brought no breakthroughs this week on the key sticking points, an official with the bloc said on Friday.
On top of that, Britain’s public debt went above 2 trillion pounds ($2.65 trillion) for the first time in July as the government ramped up public spending to cope with the coronavirus pandemic and tax revenues fell.
A large pile of debt, double deficits and an insecure relationship with its biggest trading partner could leave the UK vulnerable to investment outflows and money managers and investors look for better opportunities elsewhere.
– Reuters.