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Preview - Retail Sales Data To Trigger Big Sterling Move
Consumer spending trends will continue to be a key influence on the UK economy and Sterling during the first quarter. The latest retail sales data will, therefore, be a very important indicator for Sterling sentiment on Thursday. The recent survey evidence has suggested that consumer spending was strong at the beginning of January, but faded during the month as confidence faltered. There has been further evidence of increased price discounting and this could again be a key influence on the retail sales data as the headline retail sales data is the change in volumes and not value. Heavy price discounting could, therefore, boost volumes even if underlying spending is weak and the index of prices will also need to be watched closely in the data There are particularly heavy risks of an erratic figure surrounding the releases for December and January, especially as there are huge seasonal adjustments involved. There are very high risks involved in making a forecast for the data and Sterling is liable to move sharply. Any further decline in sales for January would subject Sterling to further sharp selling as sentiment would remain very weak. Any monthly increase of more than 0.8% would provide a significant initial boost to the UK currency Given the threat of an erratic figure and big initial market reaction, a straddle strategy has the potential to offer good value. Alternatively, Sterling is likely to weaken quickly on any initial rally following a stronger than expected figure.