On the whole a positive week for sterling which has seen it reach the highest level against the euro since mid-March – and a late in the week rally helped to erase the losses we saw against the US dollar at the beginning of the week.
The UK confirmed a slip into negative inflation on Tuesday, following the release of a -0.1% figure for Consumer Price Index (i.e. deflation) for April which saw sterling fall across the board. However, as Bank of England (BoE) Governor Mark Carney had recently warned that this was possible, this fall was tempered by previous factoring in the markets. Sterling rebounded on Wednesday, thanks to minutes from the latest BoE meeting – which showed that two members of the monetary policy committee were close to voting for a rate increase, despite the committee voting unanimously in favour of keeping interest rates on hold.
Thursday morning saw poor manufacturing growth figures released from Germany and, coupled with better than expected April UK retail sales growth of 1.2%, this saw sterling push higher across the board. Following on from Tuesday’s disappointing inflation figures, the retail sales figures certainly provided investors with fresh confidence in the UK economic recovery – and, indeed, sterling strength moving forward.
Today sees BoE Governor Carney speaking on two occasions; we expect investors to be listening intently for any indications about future monetary policy, and further thoughts on the UK inflationary environment.