Strong UK Retail Sales data support the Pound’s strength

Daily Currency Update

The Pound holds on to its strength against the US Dollar in the most recent European session, whilst investors view the Bank of England as expected to hold interest rates at their current level for a longer period, with this sentiment adding support to the Pound.

Persistent price pressures in the United Kingdom economy due to stubborn service inflation, steady labor demand, and household spending could help the Bank of England monetary policymakers to maintain the view for a longer period of higher interest rates.
Last week the data release of positive UK Retail Sales data indicated that the impact of higher interest rates by the Bank of England on consumer spending could be fading.
This shows that the UK economy could come out of the technical recession quicker than previously thought. Whilst the UK has officially entered a technical recession, with two consecutive quarters of negative Gross Domestic Product growth, Bank of England's policy maker Catherine L Mann explained the Bank of England needs to see at least one more release of inflation before determining its next course of action.

On Friday, we saw the US Producer Price Index release in the measure of prices received by producers of domestic goods and services. The release showed that US PPI climbed 0.3% month on month in January which was the biggest shift in readings since August. Core PPI which excludes food and energy increased 0.5% month on month in January against the expected reading of a 0.1% gain. On an annual basis, the headline Producer Price Index rose 0.9% year on year while the Core Producer Price Index climbed 2.0% from the previous 1.7% reading. Jerome Powell, The US Federal Reserve Chair explained the central bank needs greater confidence in the inflation trajectory before it can cut rates. With the recent US economic data suggesting more time may be needed.