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The rally from Monday’s risk lows continued yesterday with equity markets and commodities piling higher whilst haven assets, namely the US dollar, Jap Yen and Swiss Franc, falling. This was despite the yields on Greek and other peripheral debt rising although Spain showed further signs of decoupling from the peripheral problem and a dovish Bank of England.

The Bank’s minutes suggested that risks are still keenly balanced towards the downside however the ‘hold’ camp seemed to be more certain of its footing than it had been in previous meetings. The consensus from the policy makers is that a rate hike would still have an overly adverse effect on the average consumer compared to the little good it would do in controlling inflation. Demand data has shown that the people are keeping their hands in their pockets as they wait for austerity measures to bite. Inflation will continue to rise as well as long as problems in food and oil markets remain but given that wage price inflation was shown to be muted in last week’s unemployment numbers we do not expect a rate rise until at least August.

Despite this weakness GBPUSD pushed to a 3 month high as the dollar slid across the board while GBPEUR leapt back into the 1.12s for most of the day.

Sterling’s day will be dominated by the retail sales numbers due at 09.30. The British Retail Consortium’s version showed significant weakness in the consumer sector with sales 3.5% lower; a similar release from the ONS would be disastrous for the pound. I think there is not too much to worry about in the short term as March retail sales are always poor in a year with a late Easter. Combine this with the double bank holiday towards the end of April and it is understandable that Mr. and Mrs. Bloggs are saving their spending for a bit of fun over the long weekends. But spend they will, especially if the weather remains as lovely as it has been in the past couple of weeks.

We are off now until Tuesday so can I wish all of our readers a great Easter weekend

 Latest exchange rates at time of writing