Pound Sterling Surges vs EUR as Retail Sales Surprise

Updated: The GBP exchange rate complex has come under pressure once more at the start of April with the entire Markit PMI series missing the mark. However, many analysts continue to consider the latest price action as being representative of consolidative price action.

April will be pivotal for the UK unit - can the uptrend reassert itself or will we continue to see more of the same?

Keep in touch with our Live Coverage Here. For the archived material for the day in question please scroll through please scroll down. 

By Sam Coventry

Note all quotes are reflective of the inter-bank market. Your bank or payment institution is free to levy a rate at their discretion. However, FCA-registered independent providers guarantee to undercut your bank's offer, thus delivering up to 5% more FX.Please learn more here.

17:17: What happened today...

As recounted by Omer Esiner at Commonwealth Foreign Exchange:

"The British pound rose against the greenback and firmed toward a three-week high against the euro after retail sales jumped by 1.7%(m/m), eclipsing expectations for a 0.5%(m/m) rise in February. The strong sales figures helped partially offset Tuesday’s cooler than expected U.K. CPI figures and suggest that the Bank of England could still begin raising lending rates round the first half of 2015. The pound will benefit from any data or comments that add to the view that the BOE will lead other major central banks in tightening monetary policy."

15:55: Profit taking nigh?

Jonathan Terela warns of a pullback after recent gains in the GBP complex today:

"The move in the pound seems to be exhausted for now. Expectations are for a slow grind back down as traders take profits. Look for 1.6650 to act as level of resistance on the top side.the move in the pound seems to be exhausted for now. Expectations are for a slow grind back down as traders take profits. Look for 1.6650 to act as level of resistance on the top side."

14:39: GBP-USD not yet bullish

"Fast drive higher this AM. - a breakout from the overnight balance; GBP's now back on Mar.'s high volume pivot & mid at 1.6630. just short of last week's high. The 1.6590 breakpoint is the key ref. on pullback; GBP only moves to bullish on persistence past 1.6665." - ForexMarketAlerts.

13:54: CAD looking ominous vs GBP

A lot of action in against the Canadian unit today. Look at the price action in the attached graph. We could be about to see a fresh break lower which will likely put a nail in the coffin of the GBP-CAD rally.

13:28: GBP-NZD revisits 4 month lows

These aren't good times if you are hoping for higher rates against the NZ dollar. We haven't seen levels this low since November 2013.

"The best performing currency today is the New Zealand dollar, which rose to its strongest level against the greenback since August 2011.  Last night's better than expected trade numbers kept the currency bid but the main catalyst for the move were the comments from RBNZ Deputy Governor Spencer.  Like the Australian dollar, currencies are responding more to comments policymakers than economic data." - Kathy Lien at BK Asset Management.

12:31: What applied brakes to the GBP rally?

Should the UK currency have rallied higher in the wake of today's data? Possibly suggests Boris Schlossberg at BK Asset Management who points to a statement released by the Bank of England today:

"The statement failed to suggest that the BoE will consider hiking rates anytime soon, indeed the FPC members noted that with tensions in Ukraine and China there is risk that markets are not prepared for normal rates.

"That last sentence took some of the enthusiasm out of the cable rally as traders pared their expectations and cable came off the session highs. Still the pair remains above the 1.6600 level and longs may try to make another run at 1.6650 barrier later in the day, as more and more economic signs point to a change of posture in UK monetary policy."

12:12: A game-changer for the euro

Athanasios Vamvakidis, Head of European G10 FX Strategy at Bank of America Merrill Lynch has been keeping an eye on the Euro:

"We expect that whether and how the ECB will address Eurozone deflation or disinflation risks in the months ahead will be a key driver for the Euro. The real economy would justify a much weaker EURUSD, but the ECB's relative monetary policy stance prevents it from happening. If the ECB were to loosen policies further, this could be a game-changer for the Euro, particularly taking into account that the ECB will be crossing a red line by moving into unconventional territory."

11:33: Sell GBP-USD

And with regards to Cable, Jones says:

"GBP/USD continues to see near term recovery from the 61.8% retracement of 1.6470 (of the move seen in February). The previous 8 month uptrend should act as resistance now at 1.6600. The 20 day ma is located at 1.6617 and while capped here the outlook will remain negative and we should see the market re-focus attention on to the 1.6259/29 support zone which remains key (September high and the 23.6% retracement of the move up from July 2013).

"Current trade: Short 1.6530 Recommended Trade: Add 1.6590, stop 1.6665. Exit 1.6260."

11:27: Sell EUR-GBP

Karen Jones at Commerzbank:

"EUR/GBP sold off following its third failure at its 38.2% retracement at .8392. Directly overhead lies the .8419 200 day ma and we note the TD perfected set up on the daily chart and the divergence of the daily RSI – all of these factors suggest that the market has topped for now and is likely to remain under pressure.

"Current Position: Short .8373. Recommended trade: Lower stop from .8425 to .8400. Exit .8280."

11:22: How far can the GBP-USD bounce extend?

Luc Luyet at MIG Bank says the bounce higher in GBP-USD was predictable to an extent:

"GBP/USD has bounced near the support implied by its rising channel. The hourly resistance given by 1.6568 (see also the declining channel) has been broken. Hourly resistances can now be found at 1.6599 (38.2% retracement) and 1.6666. Supports stand at 1.6460 and 1.6252 (05/02/2014 low).
 
"In the longer term, a break to the downside out of the rising channel would negate the current bullish bias implied by the break of the resistance at 1.6668 (24/01/2014 high). A strong horizontal support stands at 1.6220 (17/12/2013 low)."

10:38: Why is the US dollar struggling?

The US dollar is meanwhile under pressure with markets scratching heads as to why the unit has been unable to rally, particularly in light of Fed tapering and decent data outcomes.

According to Kathleen Brooks at Forex.com the reason for the dollar's underperformance is no mystery with the answer lying in US interest rates:

"The flattening of the yield curve is worth watching, since it suggests that bond investors are bearish about the future prospects for the US economy as the Fed embarks on its rate hiking cycle.

"This is concerning as the Fed is only expected to raise rates to 1% by the end of 2015 yet this is spooking the markets. It doesn’t say much about faith in the US economic recovery, which could be bad news for assets linked to US growth like stocks and the dollar."

09:36: Tremendous retail sales

"GBP/USD pierce through 1.66 on tremendous Retail Sales. 1.7% actual versus 0.5% estimate," - Easy Forex.
"UK Online Sales drove this: The amount spent online increased by 12.4% in February 2014 compared with February 2013" - Shaun Richards at Mindful Money.

09:30: UK retail sales do the job for the pound

A powerful rally being seen in the GBP exchange rate complex.

Retail Sales (YoY) (Feb), 3.7% realised, 2.5% expected, 3.9% previous.
Retail Sales ex-Fuel (MoM) (Feb), 1.8% realised, 0.3% expected, -2.0% previous.
Retail Sales (MoM) (Feb), 1.7% realised, 0.5% expected, -2.0% previous.

08:41: UniCredit forecasting GBP-EUR at 1.9

A reminder of yesterday's forecast from UniCredit which prices in a Euro which is a great deal stronger than consensus forecasts. 1.19 is the touchstone for the pair from now well into 2015.

08:40: Sterling to stay firm

UniCredit Bank are positive on GPB today:

"Hawkish remarks from the BoE’s Spencer Dale yesterday and strong UK retail sales today are expected to keep sterling firmer: cable is thus likely to trade above 1.6550 and EUR-GBP close to the 0.83 area."

08:16: Retail sales, what to look out for

Retail sales are due at 09:30, Retail Sales (YoY) (Feb) are expected to come in at +2.5%, lower than the previous +4.3%.

Retail Sales ex-Fuel (YoY) (Feb) are expected at +2.8%, lower than the previous +4.8%.

Retail Sales (MoM) (Feb) are predicted to rise 0.5%, an improvement on a previous reading of -1.5%.

0815: Retail sales could knock UK pound today

More from Lloyds, this time regarding the outlook:

"GBP strength may be knocked back by today’s retail sales data, which we expect to disappoint in February. While this should not be seen as a significant medium term negative for GBP, as we would still expect reasonable Q1 GDP growth, it should take the steam out of the pound for today."

08:00: Technical considerations drive GBP-USD, EUR-GBP

Against the EUR and USD, GBP performed strongly yesterday even though there was little real news to trigger the move.

Lloyds Bank Research suggest the moves are likely technical in nature:

"While there were some slightly hawkish comments from Martin Weale in the morning, these should have come as no surprise as his recent record is clearly hawkish.

"The GBP recovery consequently looks to have been based more on a combination of a failure of GBP/USD to gain momentum below 1.65, a perception that EUR/GBP has peaked below 0.84 and a continued tendency of GBP to benefit from improved FX risk appetite.

"This risk sentiment was also reflected in strength in the commodity currencies and weakness in the CHF, and appetite for yield seems likely to continue to be seen as long as implied and actual volatility remain at current very low levels."