Sterling bulls gained relief as Thursday’s retail sales data defied the most pessimistic forecasts and overall sentiment gradually recovered as political developments were marked by a slightly more optimistic tone.
Headline UK retail sales rose 0.3% in October which was fractionally above consensus expectations while underlying sales growth of 0.1% was also slightly above expectations. There was still an annual decline of 0.3% following a very strong October 2016 release as prices in food stores rose 3.5% over the year.
With political considerations still important, Sterling gained some support from rumours that the UK government was willing to increase its Brexit financial offer.
GBP/EUR strengthened to highs around 1.1230 with GBP/USD at 2-week highs close to 1.3250 as the dollar came under pressure.
US jobless claims strengthened to a 6-week high of 249,000 in the latest week, although continuing claims declined to the lowest level since December 1973.
Dallas Fed President Kaplan stated that there was no question that cyclical inflation pressures were building while Cleveland head Mester continued to call for gradual monetary tightening.
EUR/USD declined to 1.1760 before rebounding above 1.1800 as the US currency came under fresh pressure after reports that documents from President Trump’s 2016 election campaign had been subpoenaed by Special Counsel Mueller.
There are no major data releases due on Friday with position adjustment ahead of the weekend likely to be an important factor as markets continue to monitor US tax-reform and political developments with choppy trading likely.
Markets will also continue to monitor developments surrounding Brexit with talks expected on the side-lines of the EU Summit amid a slightly more constructive tone from EU Council President Tusk.