Currencies

THE POUND may rise before reports on inflation, retail sales and unemployment this week which could show the economy is responding to five cuts in interest rates in as many months.

"The Bank of England has been trimming interest rates fairly aggressively," said Jeremy Stretch, a currency strategist at Natwest Global Financial Markets. The cuts "will have a lagged effect and prevent a downturn", he said. "We'll see sterling coming back over the short to medium term."

On Friday, the pound rose to $1.6295, from $1.6241 on Thursday, reducing its decline for the week to 0.2 per cent. It could rise to $1.63 this week and could rise as high as $1.67 by the end of the first quarter, analysts said. Sterling rose against the euro on Friday, putting the European Union's currency at pounds 0.6922, down from pounds 0.6952.

The central bank has lowered its benchmark rate to 5.5 per cent, from 7.5 per cent, since October. A spate of reports this week will determine if those cuts are enough to revive growth, or at least slow its decline. An inflation report is due on Tuesday, an unemployment report on Wednesday and a retail sales report on Thursday.

The pound "has found a floor for the time being", said Tony Norfield, the global head of treasury research at ABN Amro Bank. "Further progress either way will depend on UK data."

Retail price inflation is likely to have fallen to the Bank of England's 2.5 per cent inflation target in January, from December's 2.6 per cent rate. "We are looking for large discounts in core items like clothing, footwear and household goods," said Michael Hume, an economist at Lehman Brothers.

The pound got support from a report on Tuesday by the British Retail Consortium showing that sales at shops and supermarkets rose in January, for the first time in four months. Thursday's retail sales reading may bring more good news. Economists at NatWest are expecting the report to show a gain of 2 per cent over the previous month, Mr Stretch said.

"We see a hold [on interest rates[," said Tony Drewitt, who runs the sterling derivatives desk at Euro Brokers International. "The bank is likely to be conservative and see the effects of past cuts filter through the system," before cutting again. But lower rates are still expected later.

On Wednesday, the central bank said in a quarterly inflation report that the economy may grow between 0.5 per cent and 1 per cent this year, after growing 2.5 per cent in 1998. The bank had previously forecast 1 per cent growth in 1999.

Lower rates elsewhere could still make the pound an attractive investment even if UK rates fall. A three-month sterling deposit pays 5.44 per cent, while a euro deposit offers a return of 3.10 per cent.

French Finance Minister Dominique Strauss-Kahn said he sees room for a cut in European Central Bank interest rates, which would widen the gap with UK rates and may bolster the pound. "I think today, given the weak inflation, there could be place for lower rates," Mr Strauss-Kahn said on Thursday. "That doesn't necessarily mean that will happen."

The ECB sets interest rates for Germany, France, Italy, Spain, Portugal, the Netherlands, Belgium, Finland, Luxembourg, Ireland and Austria, all of which adopted the European single currency on 1 January. It left its benchmark refinancing rate at 3.0 per cent at its most recent meeting.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Ashdown Group: Contracts Executive - City of London

£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks