British Pound Exchange Rates Surge on Retail Sales, Disposable Income Data

The pound sterling (GBP) has powered higher against the dollar, euro and other key currencies on the back of a string of good economic news.

2014 looks set to see the UK currency close out on a high.

The latest boost for sterling comes from the release of data showing a massive rise in UK retail sales.

The retail sales figures follow hot on the heels of official data showing that wages are now outstripping inflation at a time of record employment for the UK.

The pound to euro exchange rate (GBP/EUR) is a hefty 0.70 pct higher on a day-to-day basis following the news.

The pound told dollar rate (GBP/USD) is 0.4 pct higher at 1.5632.

Retail Sales Surge

It is not often that one sees a beat on expectations as we have seen on the 18th of December 2014.

Retail sales grew 6.4% year-on-year in November, far outstripping expectations for growth of 4.4%.

Dennis de Jong, managing director at UFX.com, comments on UK retail sales

“The massive UK retail sales rise announced today follows hot on the heels of falling prices at the petrol pumps, as well as persistently low inflation, reflecting the growing spending power of UK consumers.

“The importation of American sales extravaganza Black Friday to UK shores has been a resounding success, and is clearly here to stay. Retailers must be feeling that Christmas has come early.”

Wages Rise, Employment Falls

The UK consumer is clearly looking more bullish, and this should not come as a surprise if we look at the improving trends in the labour and remuneration data.

The ONS this week released data showing wages are starting to outstrip inflation.

As wages outstrip inflation so the expendible income of the UK population increases - remember this is a consumer-driven economy and such changes bode well for the economic outlook.

Furthermore, data overnight showed the number of Britons claiming unemployment benefits fell by 26,900 in November, more than the 20,000 expected.

According to Omer Esiner at Commonwealth Foreign Exchange:

“The strong jobs report was even more impressive from a wage standpoint. British weekly wages rose by 1.8%(m/m) in October, well above the most recent reading of consumer inflation, which came in at a 12-year low of just 1.0%(y/y).

“Sterling stands to benefit from any upcoming data that adds to the notion of a BOE rate hike in the first half of 2015.”

Pound Exchange Rates Rise on Interest Rate Hike Expectations

Currency markets are clearly feeling more bullish on sterling - a reflection of their belief that the Bank of England will have to start raising interest rates sooner than they would have wished.

Heading into this week’s data expectations for the first hike were for around November/December 2015.

There is a belief that a readjustment must take place, a rising British pound reflects the bringing forward of expectations.

According to financial information service providers Markit:

“The latest minutes from the Bank of England’s Monetary Policy Committee remained split on the appropriate policy course, with Martin Weale and Ian McCafferty again voting to take an early pre-emptive hike in interest rates, though others saw lower oil prices adding to the case for rates to remain on hold.

“Although inflation is set to fall further in coming months, having already dropped to 1.0% in November, that won’t necessarily stop interest rates from rising next year.

“Instead, it is likely that a gradual recovery of wages growth over the next year will be a key factor persuading increasing numbers of policymakers that it is appropriate to start the process of bringing interest off current emergency record low levels.”