Sterling fluctuated between gains and losses against the US dollar this morning, as views about the domestic economy recovery remained divided following mixed economic data. Sterling had hit a five-month high of $1.5626 against the dollar earlier today, as an improvement in domestic economic data helped restore confidence in the UK economic recovery. Figures released from the Confederation of British Industry this morning showed that optimism among UK retailers was at its highest since July 2004, bolstered by sunny weather and the World Cup. Sterling later pared  its gains, however, after the National Institute for Economic and Social Research (NIESR) cautioned that the UK economy would not live up to the government’s optimistic growth predictions for the coming years. The thinktank expects UK GDP growth of 1.3% this year, just above the 1.2% forecast by the Office for Budget Responsibility (OBR), but said that the increase would be only 1.7% in 2011 and 2.2% in 2012 due to cuts in government spending. This compares with the OBR growth estimates of 2.3% and 2.8% respectively.  Sterling was also weighed down by the comments of BoE Governor Mervyn King, who today signalled that central bank policymakers were focusing on the ‘appropriate level of stimulus and not about applying the brakes’. He also said that the market shouldn’t give too much importance to the UK’s better-than-expected second-quarter GDP figures, indicating that policymakers are uncertain about the UK economic recovery. Christopher Beauchamp, London

 

Notes: [1][2] Reuters News (28 July 2010). Chart data sourced from Bloomberg