Retail sales and employment prospects keep Sterling buoyant

With most of the central banks giving the market signals on
their forward guidance programs, investors turn to fundamentals and
economic data to take their cues. The dollar however, has managed
to gain substantially against the euro and EUR/USD currently stands
at 1.3540. Markets are still cautious and uncertain on Fed policy
as Janet Yellen is taking over from Ben Bernanke. Furthermore,
speculation over Eurozone inflation
continues as markets are leaning towards the possibility of an
inevitable LTRO as the region struggles to meet inflation targets.
Mixed data from the US saw the greenback lose some ground initially
on Friday after the Michigan consumer sentiment number was reduced
to 80.4 for January. However, housing and industrial production
data from the US were steady and in line with expectations, which
continues to point towards steady tapering to its asset purchasing
scheme. In terms of economic data from the Eurozone, German PPI
numbers, Spanish trade balance and Italian industrial orders are
due out later this morning as the US markets remain closed for
Martin Luther King Day.

Retail sales data released on Friday from the UK has given
sterling a shot in the arm as it surged against its counterparts.
UK retail sales were up 2.6 per cent (MoM) much higher than the
expected half a per cent increase. This is the fastest annual sales
growth for over 9 years. In more positive data signals from the UK,
unemployment figures due out later in the week look set to show
stronger numbers than anticipated. Given that the data could come
close to 7 per cent, which is the threshold for BOE’s forward
guidance programme on increasing interest rates, Mark Carney may
need to update the unemployment figure as he outlined forward
guidance in his next meeting. Currently GBP/USD
stands at 1.6415 and GBP/EUR is trading at 1.2130.

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