The weather in the UK might be less-than-delightful at the moment, but the nation’s economic outlook is improving and Sterling is rising as a result.
This week’s upbeat Bank of England inflation reports helped the Pound climb and comments from a BoE official regarding the likelihood of a rate increase occurring next year lent the currency additional support.
Consequently, Sterling began the local session on Friday preparing to record its most significant five-day gain against its US rival since June of last year.
The Pound’s advance on the ‘Greenback’ was aided by yesterday’s disappointing US retail sales figure. The unexpected 0.4 per cent decline in sales lessened the appeal of the North American asset and saw it post widespread losses.
Today Sterling consolidated and extended gains, achieving its highest level against the US Dollar since May 2011 as a report showed that the pace of construction output in the UK increased in the final month of of last year.
The Office for National Statistics figures showed a 2.0 per cent month-on-month increase in output, in line with expectations and better than the previous month’s 0.4 per cent decline.
All construction sectors saw growth at the tail end of last year, but the increase was largely due to UK home construction occurring at the fastest pace since 2008.
Over the whole of last year construction output expanded by 1.3 per cent.
In the opinion of chief economist Robert Wood; ‘Construction ended 2013 on a strong note, driven mainly by the surging housing market. With confidence in the economic recovery building, interest rates still low and house prices booming, 2014 should be another strong year for builders. Though the first quarter may well see sizeable disruption from the weather, output will bounce back in when the weather improves as builders make up for lost time.’
The Pound also advanced on the Euro in spite of reports showing that the Eurozone and its largest economies enjoyed stronger-than-forecast growth in the fourth quarter of 2013.
While the data for the Eurozone reduces pressure on European Central Bank President Mario Draghi to introduce additional stimulus, Euro gains were limited by the news that the currency bloc’s trade surplus narrowed from a negatively revised 17 billion Euros in November to 13.9 billion Euros in December.
Inflation also remains a serious headwind to the Eurozone’s economic recovery.
Next week the Pound could fluctuate following the publication of several influential UK reports, including inflation and employment figures, the Bank of England meeting minutes and retail sales data.
Although the BoE has now changed tack with its forward guidance and is no longer linking interest rate increases to the unemployment rate falling to 7 per cent, the UK employment report will still be influential.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6704 ,
Pound Sterling,,Euro,1.2199,
Pound Sterling,,Australian Dollar,1.8524,
Pound Sterling,,New Zealand Dollar,1.9945 ,
US Dollar,,Pound Sterling,0.5986,
Euro,,Pound Sterling,0.8199,
Australian Dollar,,Pound Sterling,0.5404,
New Zealand Dollar,,Pound Sterling,0.5006,
[/table]
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