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A good day for the pound

Sales fill sterling's sails

Friday's UK retail sales for January were quite a bit stronger than expected and the pound went up. Cause and effect or coincidence? 

Retail sales were forecast to have increased by a monthly 0.2% and an annual 3.4%. In fact they were up by 1.0% in January and by 4.2% compared with the same month last year. They were good figures and undeniably positive for the pound. However, there was no buyers' stampede.  Yes, it did move higher on most fronts but it was not until several hours later that sterling really got into its stride.

And it did get going, rising through the New York session and holding onto its gains in the Far East this morning. Sterling strengthened by an average of 0.5%, adding three quarters of a euro cent and one US cent. It was the day's top performer, narrowly beating the antipodean dollars and the rand.

Greater confidence

Or less nervousness. The pickup in UK retail sales was not the only reason for a more upbeat attitude among investors. The US president finally signed the budget legislation necessary to avert a government shutdown and he said trade talks with China were making progress. In Europe the ECB hinted at renewed monetary stimulus.

The avoidance of a US government shutdown lost a little of its gloss when Trump threatened to use emergency measures to build his wall, even though he will inevitably face legal challenges. On the trade front the news was more consistently positive. The president described the negotiations as "very productive" and Beijing talked of "consensus in principle.  

Speaking in New York the European Central Bank's Benoît Coeuré said the bank is considering another round of targeted longer-term refinancing operations (TeLTROs). He linked the idea to reduced upward pressure on inflation and an economic slowdown that will be "stronger and broader" than expected. The US dollar lost momentum on the reduced trade and political tensions and the euro was dented by the prospect of more cheap money.  The yen fared worst as safe-haven demand faded.

Washington's Birthday

It being the third Monday in February the United States will be taking a day off to celebrate what is variously known as Washington's Birthday, Presidents' Day and President's Day. Most parts of Canada will be enjoying Family Day, Louis Riel Day or Nova Scotia Heritage Day.

No North American economic statistics are scheduled for release and, perhaps in sympathy, there are almost none from Europe either. Overnight the UK estate agents' portal Rightmove printed its monthly House Price Index. It showed asking prices rising by 0.4% in February, "the lowest monthly rise at this time of year since January 2012". Tonight the Reserve Bank of Australia will publish the minutes of its last policy meeting.

So investors will have to rely on rumour and speculation about Sino-US trade, ECB stimulus and Brexit. Thankfully, there should be no shortage of that.

GBP leads after retail sales beat forecast

GBP leads after retail sales beat forecast

USD loses ground on reduced political and trade tensions

USD loses ground on reduced political and trade tensions

JPY comes last as investors abandon safe-havens

JPY comes last as investors abandon safe-havens

EUR drops back after ECB stimulus hint

EUR drops back after ECB stimulus hint

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