GBP received a fillip yesterday when UK retail sales massively outshone market expectations with a six-month high score of 1.2%. On an annual basis the sector experienced a robust rise of 4.7%, which beat forecasts of 3.8%. It seems that the recent dip in consumer prices, combined with the relatively warm weather, helped lift Britons’ spirits and led to a surge in retail spending during April. And because retail sales make up around 70% of the British economy the Pound responded positively to the result, which was seen to boost Bank of England rate hike expectations.

However, BoE official Martin Weale took some of the shine off the Pound by stating that inflation would be a little bit lower than initially thought this year.

Euro

GBP rallied by over a cent against the Euro yesterday thanks to the upbeat British retail sales report.

The single currency performed badly during the morning when it was announced that Eurozone private sector output decelerated from 53.9 to 53.4 in May. A disappointing decline, from 54.1 to 52.8, in Germany was a strong driver behind the weaker-than-anticipated score, and meant that, surprisingly, the Eurozone periphery actually outperformed the core at the beginning of the month.

Optimism that Greece may, perhaps, possibly, be able to clinch a deal with its creditors to receive more financial support lifted the single currency in the evening. But three-way talks between Greek PM Alexis Tsipras, German Chancellor Angela Merkel and French President Francois Hollande yielded no immediate positive outcome.

US Dollar

‘Cable’ appreciated by around 120 pips yesterday on the decent UK retail sales numbers. Sterling’s ascent was also helped by some dud American data showing that manufacturing output slowed unexpectedly from 54.1 to 53.8 at the start of May. A shock -3.3% contraction in US existing home sales and an underwhelming Philadelphia Fed index score of 6.7 also undermined confidence in the ‘Greenback’.

After months of talk of a rate hike from the Federal Reserve in either June, August or September, markets began to speculate yesterday that the US central bank could be persuaded to wait until the end of the year to begin its tightening cycle. The recent spurt of underperforming US ecostats means that policymakers – who were already worried about strangling the domestic, and indeed, the world economy by raising rates prematurely – may decide to wait on the sidelines for a little longer than previously estimated. The fear of lower rates for longer also weighed on the US Dollar yesterday and the argument could gain credence if this afternoon’s CPI report prints negatively.

Canadian Dollar

The Pound to Canadian Dollar exchange rate soared by almost two cents yesterday to strike a fresh two-month high on the back of the surge in British retail sales. The ‘Loonie’ also suffered from market jitters ahead of this afternoon’s Canadian consumer price index report, which is tipped to show a dip in the headline rate of inflation from 1.2% to 1.0% and could therefore put pressure on the Bank of Canada to slash interest rates again later in the year.
Retail Sales are also expected to have slowed from 1.7% to 0.3% in March and this could compound the Canadian Dollar’s miseries.

Australian Dollar

Sterling jumped to a near-six-year high against the Australian Dollar yesterday, rallying by over two-cents on the prospect of an earlier-than-expected rise in UK interest rates. Traders were mightily impressed by the glittering UK retail sales report, which went some way to corroborating politicians’ arguments that low inflation will benefit the British economy.

New Zealand Dollar

The Pound to New Zealand Dollar exchange rate struck a fresh four-year high yesterday. GBP/NZD rallied by as much as three cents at one point in the day but eventually settled around a cent and a half higher than it began.