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Sterling rises on BOE minutes, retail sales

H.S. Borji
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The British pound advanced further against its US counterpart Wednesday amid signs Bank of England officials are moving closer to voting for a rate hike, while retail sales advanced at the fastest pace in ten years.

The Monetary Policy Committee voted unanimously to keep the interest rate at 0.5 percent and the size of its asset purchase facility at £3375 billion. However, the minutes also revealed emerging divisions at the BOE, as Committee members highlighted a range of views about the labour market, inflation and the best strategy for raising interest rates.

Committee members expressed a “variety of views on the appropriate path of monetary policy,” the minutes of the May 7-8 meetings showed. “The Committee would continue to refine its views as the economy evolved, and for some members the monetary policy decision was becoming more balanced.”

Regarding employment, the “path of slack was uncertain, and there was a range of views on the Committee,” the minutes showed.

The UK labour market improved further in April, the Office for National Statistics reported last week. Jobless claims declined by more than 25,000 in April, while the unemployment rate dipped from 6.9 percent to 6.8 percent in the first quarter, a five-year low. Jobs growth in the first three months of the year accelerated at the fastest pace in 43 years, official data showed.

In economic data, UK retail sales in April advanced at the fastest pace in ten years, led by a surge in food and non-food sales, the ONS reported today. Retail sales advanced 1.3 percent, more than double forecasts. Year-on-year, retail revenues were up 6.9 percent, exceeding forecasts by 1.7 percentage points.

Excluding fuel, retail revenues advanced 1.8 percent monthly and 7.7 percent annually, official data showed.

The GBPUSD rose to an intraday high of 1.6918. The pair consolidated at 1.6887, advancing 0.29 percent. Initial support is likely found at 1.6820 and resistance at 1.6928. The pair has advanced more than half a percent over the past five days, as investors continue to eye the 1.70 level.

The EURGBP fell a 16-month low. The pair shed 0.56 percent to 80.90. Initial support is likely found at 0.8087 and resistance at 0.8148.

Strong economic data reinforces the view the UK economy is accelerating at a faster pace. The rapid pace of recovery will put more pressure on the BOE to normalize monetary policy. As the minutes of the latest policy meetings show, officials are clearly shifting in favour of a rate-hike in the near future.

The BOE is widely expected to become the first major central bank to raise interest rates. Investors have benchmarked early 2015 as the time when the central bank may introduce a rate-hike.

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