• GBP Hits $1.5739
• Extension of BoE QE?
• Sterling Steady Versus The Euro 

A mixture of upbeat UK retail sales data and a newly-published survey suggesting that Britain’s economy should grow by a whopping 0.7 percent in Q3, sent sterling to more than a two-week high against the dollar today. Forex traders will also be aware that the currency also received a significant leg-up after the USD lost its footing on the release of softer than expected U.S. data, further fuellingexpectations of more Fed action.

So it was that sterling hit $1.5739, its highest level since late July after a rise in U.S. jobless claims and sluggish housing data. It had jumped above $1.57 from around $1.5668 before the UK data was released with near-term resistance at its 100-day moving average of $1.5755. The UK retail sales posted an unexpected upturn in July, raising the prospect that the economy may not be as weak as previously thought.

According to Reuters, a survey conducted by them showing the UK’s economy should put on something like 0.7 percent growth in Q3, equates to the same amount by which it probably contracted in Q2. As we’ve seen of late, there’s a lot of uncertainty as to just how strong the boost to growth will be from the London Olympics, but most agree the Games will probably help drag the economy out of recession. More working days in Q3 compared with Q2 should also help. A 0.3 percent contraction overall is expected this year. The Reuters survey also forecast an extension of BoE QE to £425bn, probably in November, from £325bn now.

GBP/USD rose over 100 pips from daily lows also propelled by better-than-expected UK retail sales, and recently reached a high of 1.5742. At time of writing, the pair is quoting at the 1.5735/40 zone, scoring a gain of 0.4 percent since the Asian opening.

Nonetheless, despite GBP’s recent rise, investors remain cautious of buying it in a big way, not least given recent manufacturing and services sector data, which has suggested the UK economy is mired in recession after contracting for three consecutive quarters up until the end of June. This may prompt the Bank to ease policy later this year.

Against the euro, the GPB was steady, paring some of its earlier gains. Analysts reckon sterling might gain a bit more against the single currency as the former’s deposits offer better returns than their euro zone counterparts. Three-month euro deposit rates are at 0.36 percent, nearly half the level of sterling rates.

Drew Hillier. Editor, ForexSpace.com