Sterling has rebounded following the release of data showing that the volume of UK retail sales rebounded 1.6 % in April following an upwardly revised 1.1% contraction in March. However, the data releases from the ONS does not tally with either the BRC or Visa spending index data which were unequivocally weak in April and in any case, year-on-year retail sales growth in February-April was still only about 1.4% which is weak. This is weak by historical standards and markets may well need more convincing that the Bank of England will hike rates before year-end.
The Dollar has been broadly stable since 15th May on a basket basis, in line with historical patterns. It may still be premature to call an end to the Dollar’s 6-week old rally given the risk of the Federal Reserve hiking three more times this year – a likely Dollar-bullish scenario to which markets currently only attribute a 40% probability. However, it is at least conceivable that the pace of Dollar appreciation may slow going forward.
