Underlying sentiment towards the financial sector is liable to remain firmer in the near term. Domestically, there will also be caution ahead of Wednesday's Bank of England inflation report, but the recent economic data will provide support. Sterling should maintain a firm tone for now, but looks to offer little value at current levels
The UK currency was hampered to some extent by a cautious outlook by HSBC banking group which stated that 2009 would be a difficult year. Sterling still managed to hold comfortably above the 1.50 level against the US currency which will provide underlying support to sentiment while there was also support weaker than 0.90 against the Euro.
The economic data offered support with the BRC reporting an annual increase in retail sales, although this was probably distorted by the timing of Easter. The latest RICS survey also continued to record an underlying improvement in the housing sector as the pace of house-price declines slowed. Sterling initially held just above 1.51 against the dollar on Tuesday before pushing higher.
The other UK data was also stronger than expected with a decline in the goods trade deficit to GBP6.6bn for march while there was a smaller than expected manufacturing production decline of 0.1% after a revised 0.3% decline the previous month. The labour-market data was also released a day early and recorded a lower than expected increase in unemployment