Sterling to Euro Rate (GBPEUR) Surges on Retail Sales Blow-Out

The British pound rallied with intent after being under pressure over recent months.

The British pound rocketed against its major rivals on news that UK retail sales for the month of September have surged ahead of expectations.

The numbers were a blow-out; the month-on-month number read at 1.9% - a huge beat on the expected 0.3% and a solid improvement on the 0.4% decline seen a month earlier.

Annual retail sales are now growing a whopping 6.5%, ahead of the more modest 4.8% expected.

The implications from a currency perspective are clear - how can the Bank of England’s Governor and policy makers continue to argue that the UK economy cannot support an interest rate rise?

If anything the risks to not raising rates are now growing and the economy’s long-term stability is dependent on the relevant rate of interest.

There is now the distinct chance that the economy could start over-heating which could return us to a boom-and-bust cycle.

In the wake of the data the pound to euro exchange rate is higher by 0.7% having reached 1.3696; we believe the pair is likely headed towards the 1.38 level.

Latest Pound/Euro Exchange Rates

	Live: 1.1456▲ + 0.11% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1066 - 1.1112
**Independent Specialist	1.1296 - 1.1341 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The pound to dollar exchange rate rose 0.46% and the near-term uptrend is confirmed with the conversion having reached 1.5486.

The pound to Australian dollar is meanwhile trading at 2.1462 and losses against the New Zealand dollar have been pared back to 2.289.

Sterling has been struggling of late as the currency has tracked the US dollar lower on expectations that both the US Federal Reserve and Bank of England were looking to delay raising interest rates.

Consensus estimates suggest that the Bank of England will only raise rates once the US Fed has done so.

The dollar has suffered on the back of some uninspiring economic data releases of late, which are actually poor compared to those of the UK.

Why is the Bank of England following the US Fed's lead when the UK's economic profile appears to be superior?

The Bank should take the brave step of raising rates based on its own domestic issues.

The British Population has Reason to Cheer

Chris Towner, chief economist at HiFX, comments on this morning’s retail figures:

"This time of year is famous for beer festivals and it looks like the biggest festival this year has been in the UK in celebration of rugby.

"Retail sales in the UK in September surged by 1.9% and volumes are up 6.5% from a year ago reflecting a buoyant economy and helped by hefty beer sales.

"With falling prices and wages up 3% from a year ago, the British population certainly has reason to cheer and this recent surge in the retail sector is expected to add 0.1% on to GDP in the third quarter. Sterling has duly risen and the High Street will certainly be willing this positive momentum on into the Christmas period, but as always there is the risk of a potential hangover.

"Having seen sterling drop both against the US dollar and the euro over the past month, this rally certainly gives importers an opportunity to add to their cover as GBP/USD approaches 1.5500 and GBP/EUR 1.3700."