After rallying against the Euro for four days straight, the British pound finally gave back some of its gains despite continued strength in economic data. Not only did retail sales pick up last month, but construction spending also hit a 9 year high.
For the time being, the UK economy seems to be relatively immune to the problems in the US. Strong consumer spending as well as a stable housing market justifies the Bank of England?s lack of concern about the recent volatility in the financial markets. The central bank can continue to remain hawkish as long as there is no major pullback in the UK economy. Service sector PMI is due for release tomorrow. Given that activity in the construction sector is at a 9 year high and activity in the manufacturing sector is at a 3 year high, there is a good chance that service sector activity could be strong as well.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com