Dollar

The pound surged towards $1.3440 against the US dollar

The pound saw a 0.40 per cent climb against the US dollar this morning, with Sterling bulls pleased to see a surge in the latest raft of UK ecostats.

According to the Office for National Statistics (ONS), retail sales in the UK increased by 4.4 per cent year-on-year, up from the previous period’s rise of 1.4 per cent and almost double the forecast of 2.5 per cent.

The ONS attributed this rise to two important factors.

This was the good weather in May and the Royal Wedding, but analysts have also taken it as a positive indication of the UK’s economic recovery in the second quarter.

Retailers suggested that a sustained period of good weather and Royal Wedding encouraged spending in food and household goods stores in May

Office for National Statistics

The ONS said in a statement: “Retailers suggested that a sustained period of good weather and Royal Wedding encouraged spending in food and household goods stores in May.”

The results are also significant in that they should encourage the Bank of England’s (BoE) Monetary Policy Committee (MPC) to feel more comfortable raising interest rates in August this year.

Across the pond, investors are still digesting yesterday’s US Federal Reserve rate decision, with the ‘Greenback’ currently dipping slightly as investors take profit.

Analysts are currently rather bullish on the dollar, with the US economy now thought to be growing near 4 per cent, unemployment at its lowest level in almost half a century and inflation climbing as expected.

Stephen Gallagher, Chief US Economist at Societe Generale reflected this optimism: “The Fed deserves tremendous credit for steering the economy to calmer waters, supporting what is likely to be the longest expansion in US history while meeting inflation and employment objectives. Fiscal policy played a role during the crisis, but monetary policy was at the forefront.”

The rate rise was, however, largely priced in by investors, therefore the influence of the rate decision was somewhat dulled.

Looking ahead, all eyes are on the European Central Bank’s (ECB) rate decision due at midday.

Investors do not expect a rate rise to occur on this occasion, instead, the focus will be on whether the central bank will indicate plans to taper down its bond-buying measures before the end of the year.

If this occurs then we could see the euro siphon demand away from the dollar – something that could give the pound US dollar extra room to climb.

In the afternoon we will also have the US retail sales results to consider, with a forecast rise capable of keeping the dollar afloat.

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