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U.K. Household Spending Jumps by Most Since May 2008, Pushing British Pound Higher

U.K. Household Spending Jumps by Most Since May 2008, Pushing British Pound Higher

2010-03-25 12:21:00
Michael Wright, Currency Analyst
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Overview
Retail sales in the U.K. leapt the most since May 2008 on the back of increasing consumer spending on goods from auto fuel to electrical items. Sales accelerated 1.6% in February from a downward revision of -2.1%, which exceeded economists’ expectations of 0.6%, while annualized prices soared 5.4%, surpassing forecasts of 4.9%, the office for National Statistics said today in London. The jump in the reading is likely attributed to the recent decline in jobless claims as the number of people out of work dropped the most since 1997, and the data highlights an improved outlook for retail sales as the Bank of England expects businesses to keep staff numbers stable in the coming months.

Market Reaction
Following the better-than-expected release, the GBP/USD jumped from a low of 1.4936 to an overnight high of 1.4984. Looking at the daily chart, the pair continues to trade within a descending channel that has held from January, and with the recent retracement from the upper trend line late last week, the pair is likely to test pivot support at 1.4801, with a break below exposing 1.4740 as our speculative sentiment index signals for further losses in the pair.

gbpusd

Forecast
Going forward, investors are weighing in a zero percent chance that the Bank of England will raise interest rates twenty five basis points at its next rate decision meeting on April 8th, according to the Credit Suisse overnight index swaps, as central bank aims to encourage a sustainable recovery. Indeed, jobless claims fell the most since 1997 in February, an indication that the economic recovery in the region may be strengthening. Meanwhile, last week’s minutes showed that policy makers voted 9-0 to maintain its 200 billion quantitative easing scheme and keep its benchmark interest rate unchanged as pausing rates “would allow the committee to continue to assess the effects of the cumulative loosening of monetary policy since September 2008” and evaluate any evidence of inflation.

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Written by Michael Wright, DailyFx Research
Questions? Comments? Email me at instructor@dailyfx.com


 

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