While a bout of US dollar weakness surely helped propel the British pound?s 70 point rally this morning, stronger than expected UK economic data gave the currency a nice boost as well.
Retail sales during the month of May rebounded 0.4 percent after contracting the month prior, running counter to the BRC indicator for the same period and boding well for consumption trends. Today?s release underpins much of Bank of England Governor Mervyn King?s hawkish bias, as any additional constriction of capacity pressures will add to fears that inflation is far too high and upside risks remain. Speculation regarding the central bank?s next move will likely remain the major driver of GBPUSD directionality, especially after King said earlier this week that the BOE “may need to take further action” on inflation as expectations have “drifted up.” Looking ahead to next week, event risk will be contained to the release of the Bank of England meeting minutes on Wednesday. The danger in the release of the minutes lies in how the central bankers voted in the most recent meeting, as just a few votes for a rate hike in June could lead to speculation of policy action in July.