GBP flows: GBP firm after retail sales
GBP rising a little after retail sales, which were much as expected but supported the impression of an improving UK economy.
UK retail sales data was in line with expectations, but the underlying trend continues to improve, and supports the more positive GBP tone seen this year. EUR/GBP has dipped slightly and is putting pressure on support in the 0.8500/20 area. UK growth numbers have certainly surprised on the upside this year (although are less impressive on a per capita basis), and optimism on the UK economy looks to have boosted GBP beyond the levels suggested by recent yield spread correlations. However, the pound is expensive against the EUR in real terms here, and we continue to see scope for the BoE to cut rates more than the market is pricing in, at least relative to the ECB. So levels near 0.85 are likely to be hard to break unless we return to a very much more positive risk environment.
