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Strong Easter Retail Footfall Expectation Boosts Pound Higher

UK shoppers may continue to demonstrate their appetite for splurging out this Easter, despite concerns about the impact of inflation upon spending.

The Pound is currently on a strong rise against both the Euro and the US Dollar, helped by the expectations that consumers will still flock to the high street this Easter weekend.

This is the conclusion of Springboard, a retail footfall analyst, which believes that a combination of mild weather and Easter falling closer to payday than last year will keep shoppers on the streets.

Footfall could increase 5.4% for retail and 8.8% to high streets overall this Easter weekend, although Springboard Director Diane Wehrle cautions that this is unlikely to see spending rise.

Strong levels of inflation mean that consumers are becoming more likely to buy food, drink and experiences than splash out on fashion.

Nevertheless, investors seem to be seeing the positive side of the findings, as the Pound continues to rise higher versus the Euro and US Dollar.

Hope that a strong Easter weekend may serve to boost GDP in the third quarter, along with general speculation in Sterling after last week’s softening, is pushing the Pound up today, in spite of a lack of domestic data.

The Pound had declined at the end of last week following poor data covering industrial, manufacturing and construction production, trade data and an estimate for GDP in the three months to March.

It all added to the picture, created earlier in the week by the latest Markit PMIs, that the UK economy has weakened notably in the first three months of 2017, which prompted investors to sell the Pound.

The Euro had faced similar selling pressure, although the sell-off in the common currency was sparked by the US military intervention in Syria.

Investors went looking for safer assets, leaving the Euro unappealing.

Today, the sell-off continues, even though the latest Sentix investor confidence index has shown a notable rise in sentiment.

The overall index has climbed from 20.7 to 23.9, pushed higher by a strong rise in the current situation headline index from 23.8 to 28.8 and a climb in the expectations index from 17.8 to 19.3.

The April index is currently at its highest since August 2007, while the headline indices are at their highest since January 2008.

But with a speech due shortly from Federal Reserve Chair Janet Yellen, investors are in no mood to take up new positions on the Euro until they see what the chief US policy-setter has to say.

The eagerly-awaited Federal Open Market Committee (FOMC) minutes from the March meeting in which interest rates were hiked to 1.00% surprised investors by showing intensive discussion regarding the Fed’s enormous balance sheet.

The Fed currently manages $4.5 trillion worth of assets bought under its quantitative easing programme in response to the financial crash; investors had been expecting discussions on the state of the balance sheet to begin towards the end of this year, not at the end of the first quarter.

However, policymakers are beginning to think that it is time to stop reinvesting the principle from maturing assets, which would have the side-effect of freeing up demand on the bond markets.

Because bond issuers would therefore have to offer higher interest rates to investors in order to entice them to buy treasuries, the Fed may need to hold-fire on plans to normalise monetary policy further.

Potential for Janet Yellen to talk more on this subject, or give more details on the outlook for interest rates, is keeping the US Dollar soft, with losses lengthened by a dovish outlook from St Louis Fed President James Bullard.

Bullard has commented that he sees the US economy stuck in a trap of low growth and productivity and that there is no rush to raise interest rates.

At the time of writing, GBP EUR exchange rates were trending up 0.4% at around 1.17, while GBP USD exchange rates were trading around 1.24, up 0.3%.