Data underpins Sterling

The strong housing and PPI data will reinforce near-term confidence in the currency, but the CPI data on Tuesday will be crucial.       

Sterling pushed to a high of 1.9935 against the dollar in European trading on Monday after firm data.

The UK growth and inflation data will be watched very closely this week for further evidence on economic trends with the consumer inflation and retail sales reports particularly important. The producer prices data was stronger than expected with a 0.6% increase for March while the annual core rate rose to 2.9%, the highest level for over two years which will maintain fears that UK companies are finding it easier to pass on cost increases. The UK currency will be very vulnerable if the evidence suggests a combination of weak growth and slowing inflation as this would undermine confidence in higher interest rates.

The housing data will also be strong and the latest data was very strong with the Rightmove group reporting a 3.6% increase in prices for April which increased the annual rate to 15.0%. The housing data will provide near-term Sterling support, but the underlying risks in the sector remain at extreme levels.