Another mixed day for sterling saw it make further gains against the euro, whilst falling to its lowest level against the resurgent US dollar since the start of May. With no major data out of the UK yesterday, market movements were influenced by events further afield. Poor German Economic Sentiment data saw the euro falter, allowing sterling to rise to fresh year-and-a-half highs against the single currency. Performance against other major currency partners was less impressive, particularly against the US dollar, which continued its fledgling recovery despite showing negligible growth in retail sales throughout April.
Today sees the release of key economic data from the UK, which could act as a catalyst for further sterling strength. A fresh quarterly inflation report from the Bank of England may indicate that an interest rate increase is likely sooner than expected. Although it is possible, it could also show concern from policy makers that the currency’s recent strength is threatening the UK’s falling inflation. The release of the unemployment rate tomorrow will also give an important snapshot of the health of the job market in the UK, with a decrease likely to support sterling strength.
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