British Pound Jumps into Easter Break on 'Astonishing' Retail Sales Beat, up 0.3% vs. Euro, Pares Losses vs. Dollar

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Pound Sterling was seen outperforming peers on Thursday, April 18 after UK retail sales data surprised the currency market traders by printing at a stronger level than was expected.

UK retail sales for March grew 1.1% on a month-on-month basis, easily beating a dour market expectation for a reading of -0.3%.

Year-on-year the figure stands at 6.7%, against expectations for 4.6%.

The data, when combined with the robust wage figures released earlier this week, will go some way in reassuring markets the UK economy remains resilient despite the ongoing headwinds of Brexit-inspired uncertainty.

The British Pound reacted because the beat of expectations was a substantial one: it takes big deviations from consensus to move Sterling in this Brexit-obsessed time.

The Pound-to-Euro exchange rate rallied to a high of 1.1577, having been as low as 1.1536 earlier. The Euro was already under pressure against both the Dollar and Pound earlier in the day after a slew of disappointing data releases out of the Eurozone were released that confirmed the bloc is still struggling to escape the fallow period of growth that has been in place since the second-half of 2018.

The Pound-to-Dollar exchange rate printed a high at 1.3052 having been teetering on the brink of going sub-1.30 earlier in the day.

Sterling-Euro rallied first on disappointing Eurozone PMI data, and then on a strong UK retail sales reading.

Both exchange rates have been enduring a slow but steady grind lower over recent days, and the data could go some way in underpinning Sterling.

"Astonishingly strong UK March retail sales growth of 1.2%MoM and that excludes fuel. Given Easter is in April and the British Retail Consortium said things were no-where near as good, it's a bit of a puzzle," says James Knightley, Chief International Economist at ING.

According to the Office for National Statistics the UK retail sector saw sustained growth throughout the first three months of the year.

All store types except department stores and household goods stores increased in the quantity bought in the three months to March 2019, when compared with the previous three months.

The monthly growth rate in the quantity bought in March 2019 increased by 1.1%, with food stores and non-store retailing providing the largest contributions to this growth.

"UK Retail Sales absolutely obliterated expectations in March, suggesting that household spending will lift GDP growth substantially in Q1," says Ranko Berich, Head of Market Analysis at Monex Europe. "Brexit is still the only story in town for Sterling, but if data like this keeps printing this won’t remain the case forever."

The Outlook for the UK Consumer

The retail sectors strong performance should add to expectations for a robust first-quarter GDP reading out from the UK economy.

Looking ahead, much will of course depend on how consumers adjust their habits in light of Brexit developments.

"We think consumer spending could continue to perform well in the near-term," says James Smith, an economist with ING. "The latest Brexit extension to the end of October could see consumer confidence rise a little over the next couple of months as some of the ‘no deal’ concerns temporarily dissipate."

Smith believes the prospects of a sunny Easter trading period, makes for a better backdrop for retailers ahead of the summer period.

"This could see a bit of growth momentum return in the short-term, although we suspect overall economic activity will continue to be restrained by the challenging investment environment. With Brexit uncertainty set to return again as we move through the summer, we think it is unlikely that the Bank of England will hike rates again this year," says Smith.

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