Wise Money reflects on UK growth

Data from the British Retails Consortium, out last night, showed no signs of a slow down in UK consumer spending. Healthy growth in March gives further support to those pushing for a rates rise as early as May.

Retail sales growth was up from 5.6 per cent last month to 6.2 per cent for March an increase that was expected by the market but not by such a high margin.

Further upside for the Pound against the euro and Dollar was helped by an interesting article in the FT, about overseas dividend payments possibly being exempted from UK taxes.

The FT report explaining that the UK Treasury could possibly allow UK based companies to repatriate money made from foreign profit tax free, which was the key element, was welcomed by many and the positive boost was hence reflected with the Pound strengthening. As a result the Pound hit a high of $1.9815 and €1.4750 yesterday afternoon.

This afternoon the ECB will meet to discuss interest rate levels with the market expecting them to keep rates on hold at 3.75 per cent. However with the Hawks circling and the inflation argument ready to be used, the market players are looking to see if Jean-Claude Trichet opts to use the term "strong vigilance," his typical signal that rates will be lifted at the next policy meeting.

Across the water in Asia the Japanese Yen felt further pressure from the carry trade, a speculative strategy where investors borrow low-yielding currencies and lend high-yielding ones, which has helped weaken the Japanese currency as of late.

The low Japanese interest rate, which is currently just 0.5 per cent, has been put in place by the Bank of Japan to further tighten monetary policy and help nurture economic recovery. The pressure on the Yen is being mostly inflicted by the high yielding currencies of the Australian and US Dollar as well as Sterling.

Over in the US the Federal Open Markets Committee meeting notes from March explained that Inflation was "uncomfortably high", with the Fed seeing inflation as the "predominant concern" for the US economy.

The Fed explained that further policy firming might be needed to cool inflation but also mentioned that there was clear concern about the US economy’s growth. The explanation left some market participants in double mind as to whether the Fed will raise rates any time soon citing the FOMC communication as being slightly inconsistent.

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