A positive week for sterling has seen it gain ground against both the euro and US dollar, as positive labour data from the UK softened the blow of disappointing UK inflation throughout January. A quiet start to the week saw sterling drift lower against its major currency partners as it struggled to hold on to the strong levels reached at the end of last week. Inflation of only 0.3% in January served to intensify sterling’s decline when it was announced on Tuesday, as fears grew that UK inflation could soon slip into the negative.
Wednesday saw a turnaround however, with sterling reaching a fresh seven-year high against the euro, and reversing the earlier week’s losses against the US dollar. This turnaround was supported by minutes from the Bank of England (BoE)’s latest policy meeting, which served to play down fears over low inflation in the UK. Better-than-expected wage growth of 2.1% compared to the previous year further strengthened sterling’s performance on its best single day of the week. A quieter day on Thursday saw sterling trade within a narrow range against the US dollar, while remaining near its multi-year highs against the euro following further mixed messages from the Eurozone regarding the Greek debt crisis.
Retail sales figures for January will be released today in the UK, and provide insight into consumer spending patterns. Following a busy Christmas period, sales are expected to have fallen by 0.1% throughout January, representing the first such contraction since October last year.