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FX Headlines: Unexpected Retail Sales Boost Rate Hike Expectations For BoE; Could Same Be In Store For BoC?
Written by article default Saturday, 23 April 2011 12:45
The British Pound was the biggest gainer in the overnight headed into the North American session as stronger-than-expected retail sales figures boosted rate hike expectations for the Bank of England. Indeed, the 0.2 percent month-over-month gain in March retail sales blew through analysts’ expectations, which had forecasted a 0.5 percent forecast, according to a Bloomberg News survey. The sales figures were not the only data to support a stronger Pound: net borrowing for the U.K. was £18.6 billion, lower than the £20.0 billion estimate; austerity measures heed well for consumer confidence as the government tightens its belt. As such, rate expectations rose, according to the Overnight Index Swaps: 50.2-basis points have been priced in for the Bank of England, with a 10.0 percent chance of a 25-bps rate hike at their next meeting.
Similarly, Canadian retail sales figures gained 0.4 percent, though the numbers were slightly lower than the 0.5 percent forecast. However, the sales less autos figure was 0.7 percent, beating expectations. Consumption is expected to tail-off in the second half of the year, as budget reducing measures are expected to weigh on consumer spending. While inflation data released on Tuesday certainly suggested rising price pressures in Canada, it would likely take a few months of consecutive increases in consumer price index data to force the Bank of Canada to raise rates, as a stronger Canadian Dollar has helped tame inflationary pressures.
Fundamental Headlines
• Bernanke Bond Market Signals No Shift With Obama Deficit Cutting – Bloomberg
• Supply Chain Disruptions Over by June – CNBC
• Financial Arm Drives GE Earnings Growth – Financial Times
• Japan Imposes Ban on Nuclear Zone – WSJ
• Jobs Data Signal Progress – WSJ
GBPUSD: The GBP/USD pair continued its push higher in 2011, easily breaking through the 1.6400 and 1.6500 levels of psychological resistance following stronger-than-expected retail sales figures. The Pound has been the strongest performer intraday, gaining 0.98 percent against the Greenback thus far; the British Pound has also posted significant gains against the commodity currencies and the Euro. Following the releases of the retail sales data, the Pound-Dollar pair jumped over 60-pips, and has now rallied over 400-pips since Monday’s low following the rating warning on U.S. debt by S&P.
Taking a look at price action, a key level at 1.6458 appears to be a level of resistance, and a close above said level will form a new level of support. Similarly, the GBP/USD pair has found accelerating upward momentum over the past few days, with the MACD Histogram showing greater bullish divergence. The 20-SMA /50-SMA divergence is widening, further supporting our notion of bullish momentum for the pair. The pair could have further room to run before a potential sell-off, as the RSI remains below overbought conditions, at 64. Similarly, the Slow Stochastic oscillator has yet to turn suggest a sell signal, with %K greater than the %D at 78 and 74, respectively, with the differential beginning to widen once more.
Written by Christopher Vecchio, DailyFX Research.
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