- Retail sales jump in April sunshine
- GBP/USD posts strong weekly gain
- GBP/EUR advance less decisive
- Concerns about UK debt and inflation could be a H2 story
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The British Pound is set for a decisive weekly gain against the Dollar.
Another strong UK data print will shore up Pound Sterling ahead of the weekend and help consolidate gains against both the Euro and Dollar.
UK retail sales rose 1.2% month-on-month in April from 0.1% in March, easily beating expectations for 0.2%, taking the year-on-year change to an impressive 5.0% in April, up from 2.6% in March and exceeding expectations for 4.5%.
Good weather - this April was the sunniest on record - drove a surge in sales at food retailers, said the ONS. But, this is more than a transient story about weather, as the underlying trend is firm: sales volumes increased 1.8% in the three months to April, the strongest such rise since July 2021.
"Well now, that challenges the idea of a cautious consumer. Retail sales roared into spring," says Rob Wood, Chief UK Economist at Pantheon Macroeconomics. "Retail sales will pull back sharply in May but the uptrend looks solid."
"Retail sales bloomed in April, lifted by warmer weather and Easter festivities. This 1.2% growth was the fourth consecutive month that sales volume grew, making it the largest three-monthly rise since July 2021. A notable trend that could be an early sign of consumer sentiment picking up," says Sagar Shah, Associate Partner at McKinsey & Company.
These retail figures follow Wednesday's above-consensus inflation reading and Thursday's better-than-expected PMI survey for May. The trio of 'beats' will underpin market expectations that the Bank of England will cut interest rates on one more occasion this year.
At the start of the week, the bet was that the Bank would cut twice.
Falling expectations for rate cuts are helping UK bond yields rise faster than comparative bond yields elsewhere, creating demand for Sterling.
The Pound to Euro exchange rate now holds a slight gain on the week of 0.07% at the time of writing, as it clashes with the 1.19 resistance level. The Pound to Dollar exchange rate rises to 1.3458.
"GBP/USD has risen by around 1.3% over the week so far. USD weakness is part of the story. But GBP/USD has also been supported by interest rate differentials. The two‑year differential between UK and US government bonds has moved back into positive territory this week because markets have pushed back the timing of the next Bank of England interest rate cut to November from September," says Kristina Clifton, Senior Currency Strategist at Commonwealth Bank.
Although the Pound is holding weekly gains, we think it could be higher, having noted it is showing bouts of nervousness about the rising cost of UK bonds.
The UK's inflation and debt dynamics are deteriorating, and there are calls for more tax rises by left-wing members of the government.
This makes for a difficult second half to the year, we think. But for now, the Pound and economy are enjoying some sunshine.