U.S. Forex Market Commentary

STERLING

The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9710 level and was capped around the $1.9915 level.  Sterling has traded in a $1.9675 to $2.0025 range over the past several days.   Many data were released today that contributed to sterling’s pullback.  First, the U.K. today saw the CBI April high street sales balance fall sharply to -26% from +1% in March, the lowest level since November 2005 and much worse than estimated.  Second, March total net consumer lending expanded ₤8.2 billion from a downwardly revised ₤9.6 billion in February.  Third, BSA reported March gross lending fell to ₤3.6 billion from ₤5.4 billion one year ago.  Fourth, M4 money supply growth eased in March to its slowest rate in nearly two years.  Fifth, it was reported that March mortgage approvals fell significantly to their lowest level since records began.  Parliament’s Treasury Select Committee has endorsed the appointment of Bank of England Governor King for a second term.  King spoke about the central bank’s current policymaking dilemma saying “We must balance the risk of a sharp slowing in activity this year, which would pull inflation below target next year, against the risk that without some slowing in the pace of activity, above-target inflation in the short term might have some tendency to persist.”  King also warned that inflation could surpass 3.0% like it did in 2007 and cautioned that consumer spending will likely slow further.  Cable bids are cited around the US$ 1.9505 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7895 level and was supported around the ₤0.7830 level.