Pound Strengthens on Stronger Consumer Confidence

The Pound Sterling was firmer after the Nationwide Consumer Confidence Index rose from all-time lows, providing respite to a currency battered by an overall deteriorating domestic economic scenario.

THE TAKEAWAY: UK consumer confidence rises > Though significant headwinds remain for UK economy, markets react positively > Pound stronger

The British Pound was higher after a Nationwide survey unexpectedly reported a rise in UK consumer confidence in November. Immediately following the release, Cable strengthened from 1.5505 to 1.5512.

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In Tuesday’s report, Nationwide reported that overall consumer confidence in November rose from 36 to 40, versus consensus estimates for no month-over-month change. Within the sub-categories, a gauge of Britons’ assessment of the present situation remained flat at 18, while the expectations measure rose from 48 to 55. The index also showed that British consumers’ perceptions of whether it is a good time to make purchases rose from 75 to 77.

With these latest figures, the Nationwide index rebounded from its lowest level since the series began in 2004. However, any positive impact on the Sterling could be short-lived as significant headwinds for the British currency remain, on both the economic and monetary-policy fronts. Earlier this move, the Rightmove House Price Index revealed a drop in home asking prices in December, while the unemployment rate stands at its highest in 15 years, with youth unemployment above the 1 million mark. On Wednesday, the December GfK Consumer Confidence survey release is expected to show yet another drop from November’s print, which already stands at the lowest level in nearly 3 years.

At the same time, inflation is showing signs of receding as the effects of the January VAT increase fade and CPI increasingly reflects the sluggish pace of economic activity. Since peaking at 5.2 percent in September, headline inflation has declined for two consecutive months to 4.8 percent, further reducing pressure on an already dovish Bank of England to tighten policy. With little to indicate a dramatic positive shift in economic climate, and with a potential recession in the Eurozone threatening to spread to the UK economy, tomorrow’s BoE minutes are likely to confirm this dovish bias, further weighing on the Pound.

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