1 May 2007, 17:18  Pound at days highs after strong CBI retail survey

The pound was at day highs after a strong retail survey boosted expectations the Bank of England will raise interest rates beyond 5.50 pct over the coming months. The Confederation of British Industry said the balance of retailers reporting year-on-year growth in sales volumes was +44 pct. That was the fifth straight positive balance and the highest since May 2004. It was also far higher than March's +32 pct and analysts' expectations of a modest decline to +26 pct. While markets have priced in a quarter point rate hike to 5.50 pct next week as a virtual certainty, the survey has boosted expectations for rates to rise further in the coming months. "The robust CBI distributive trades survey not only cements a 25 basis point interest hike to 5.50 pct on May 10 but increases pressure for interest rates to rise further thereafter," said Howard Archer at Global Insight. Earlier this morning the pound also received a slight boost from the April manufacturing PMI survey. Although the headline index reading slipped back slightly to 53.9 from 54.2, the output index rose to its highest since September last year and the price components also posted strong rises. Meanwhile, the dollar was steady ahead of this afternoon's Institute for Supply Management's April Manufacturing Index. The US currency has been rangebound this morning with trade quiet due to public holidays across much of Europe and Asia. The ISM index is expected to edge up slightly to 51.0 pct from 50.9. Analysts at BNP Paribas markets will be paying close attention to the labour sub-index within the report ahead of Friday's US labour market report. Meanwhile the euro was also stable with most of continental Europe observing the May Day holiday. The only news of note is German labour minister Franz Muentefering saying tomorrow's German labour market data will show the unadjusted number of unemployed in German falling to 3.967 mln in April from 4.108 mln in March.

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