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Is the UK Recovery Premature? (Tom Holian)

Friday, September 13, 2013 4:25
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Sterling Euro exchange rates have hit their highest level seen since January and Sterling Dollar exchange rates are the highest since February. The UK has had a good run over the last few months and Sterling has seen the benefits. The Manufacturing and Construction sector have been the best for years and earlier this week it was announced that UK unemployment has fallen from 7.8% to 7.7%.

Mark Carney has suggested in his Forward Guidance that UK interest rates are unlikely to rise until unemployment hits 7% and many analysts expect this to happen by 2015. However, in a speech to the Treasury Select Committee yesterday Carney said he was not afraid to raise interest rates if necessary. This comment confused the market but has kept Sterling strong during yesterday’s trading session.

Yesterday some of the UK’s largest retailers have suggested that the economic recovery could be subdued. Consumer spending has been strong this year but with the worry of wages not keeping up with inflation it is only a matter of time before consumer spending drops which is likely to have a negative impact on the Pound. A return of earnings growth could take a year before they are higher than inflation which could drag on the economy if and when UK interest rates rise.

Later today the big mover will be US Retail Sales due out at 130pm. Expectations are for a growth of 0.4% so anything different could cause volatility on the currency markets.

Wednesday is expected to be one of the biggest days for fx markets as the Bank of England minutes are published and the Fed Interest Rate Decision is released. The main issue will be whether or not the Fed decide to taper their current amounts of QE which currently stands at USD$85bn per month. Any signs of tapering or a suggestion of the plan being slowed down could see Dollar strength shortly after the meeting.

In order to protect yourself against any adverse movement and if you want to take advantage of current exchange rates feel free to contact me directly for a free quote. Tom Holian


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