Pound Firm as BoE's Haldane Talks up Recovery

Above: Comments from the BoE's Andy Haldane helped keep sterling firm, image © Pound Sterling Live 2015.

The UK currency has been boosted by a fresh report that confirms the economy’s retail component continues to put in a solid performance.

Data from the Confederation of British Industries (CBI) shows 50% of retailers said that sales volumes were up in January on a year ago.

10% said they were down, giving a rounded balance of +39%, this was above economist expectations for a reading of +35%.

The pound to dollar exchange rate (GBP/USD) firmed towards 1.5126 while the pound to euro exchange rate (GBP/EUR) held just below 1.34.

“The survey of 127 firms showed that whilst sales volumes grew at a slower pace than in the previous month - which benefitted from bumper Black Friday sales - the rate of growth remained healthy, and volumes were well above average for the time of year. Firm growth is anticipated again in the year to February,” says Rain Newton-Smith, CBI Director of Economics.

Haldane: UK Economic Recovery Looks Firm

Further boosting the GBP’s outlook was Bank of England (BoE) Chief Economist Haldane who has said the U.K. economic recovery is looking robust.

While the central bank is in no rush to raise interest rates, “the BoE is still poised to be the next major central bank to raise interest rates and this prospect should help sterling outperform other many currencies,” says Kathy Lien at BK Asset Management.

Haldane said in an interview that the "new normal" for rates will be between 2 and 4 percent and when rates rise, they should do so at approximately half a percent a year. 

“While these comments do not indicate that the BoE is ready to raise rates, the fact that the conversation centres on tightening shows which way policymakers in the U.K. are leaning,” says Haldane. 

Federal Reserve Offers No Hindrance to US Dollar

While sterling has arrested falls against the US dollar on currency markets any hopes for a FOMC-inspired rally were dashed.

The January meeting of the FOMC saw Yellen suggest the Committee was intent on doing nothing on policy for “at least a couple of meetings.”

“This week’s Fed meeting was always destined to be something of a holding event, marking time ahead of fresh guidance at the next meeting on 18 March, or perhaps more likely at Yellen’s semi-annual testimony in February (date not yet announced). In that sense and given the dynamics at play at the moment – a strong US economic recovery, but fragility, unevenness and signs of disinflation/deflation elsewhere - the Fed needed to keep its options open,” notes Ray Attrill at National Australia Bank in a note to clients.