UK CBI Distributive Trades Keeps Sterling Bid

Sterling continues to recover from the trouncing its received at the end of last week on disappointment with a negative Q3 GDP reading. Talk today is of consistent Middle East demand against both the dollar and euro. The $1.6450 area has been approached, but good offers thought to lie in the $1.6470-$1.6500 band may encourage some intra-day position squaring. Support is seen in the $1.6380-$1.6400 area. While there are some calls for the euro to test the GBP0.9000 level, we suspect the euro can claw some ground back here today in North America, with the GBP0.9050 area holding and momentum indicators poised to reverse.

The CBI Distributive Trades survey was stronger than the market expected, as has been other survey data, underscoring the surprise of the contracting GDP. The Oct Distributive Trades balance rose to 8, the highest since the end of 2007. The expectations balance for Nov rose to 19, the best showing since July 2007.

There is some thought that there could be a year-end pick up in retail sales ahead of the expiration of the VAT tax cut. However, the fundamental backdrop of rising unemployment and low wage growth tempers much enthusiasm.