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Economic data out earlier highlighted the strength of the UK economy. Better than expected retail sales for July figures came out at 3.0% versus expectations of 2.7%. Food sales increased by 2.1%, their largest rise since April 2011 as sunny weather saw customers buy more food, alcohol and clothing. The better than expected figures gave a boost to Sterling with the pound extending yesterday’s gains and fast approaching the 1.56 USD level.

Falling mortgage rates and rising consumer confidence is driving a consumer led recovery with strong retail sales but there needs to be caution as inflation concerns will start to weigh on the currency.

Recent data from the UK has been very good with GDP coming in at double expectations of 0.6% and PMI services at the highest level since 2006. The UK is outperforming its European peers but this has not been reflected in currency strength against the Euro, with Sterling still hovering close to a 52 week low against the single European currency. Sterling is currently trading around 1.17 Euro, less than 3 cents above its 52 week low and more than 10 cents below the 52 week high. With much better economic data it is strange that the markets have not boosted Sterling more against the Euro.

The further strength in Sterling today will put pressure on exports and with the pound at 1.56 USD exporters are having a tough time. How long will this continue?