The first few weeks of this year, forecasters predicted that following extreme USD strength against the rest of the G10, this year would see the demise of the USD strength and the crowning of either GBP, EUR or JPY. At times this has seemed as if it may come to fruition; however, every time the USD’s challengers take an inch, the US seem to take a mile back. This has been the case this morning with the UK releasing their latest retail sales figures, although this came in, considerably stronger than anticipated at 0.5% (forecast to come in at -0.3%) well timed hawkish Fed speakers, most notable Loretta Mester, who called for a 50bp base rate hike, meant that the expected GBP strength following strong figures was mute. The greenback actually pushed the Sterling back firmly into the 1.20. Later today (13:45GMT), we will see FOMC member Michelle Bowman speak at the Tennessee Bankers Association, where further Hawkish comments are expected and will likely support the USD further.

In the other G7 currencies defence, the latest retail sales figures in the US came out this week, with the figures showing just how far ahead the US economic conditions are compared to their peers. Retail sales m/m came in considerably stronger than expected at an impressive growth of 3% (forecast to come in at 1.9%), and core retail sales came in at 2.3% (forecast to come in at 0.9%). Although these are the strongest retail figures of the G3, we saw the US and UK post stronger than expected inflation figures. An interesting off-shoot of high inflation as people panic buy, worrying they may be priced out of buying their favourite products later down the line. PPI in the US also surprised on the upside yesterday, showing that inflation still persists and most likely caused the hawkish speeches made that were discussed earlier.

With a bank holiday in the US next Monday for President’s Day, markets turn their attention to PMI data on Tuesday. The latest figures in the UK, US and Eurozone come out throughout the day, and the BoE will be hoping that they can post figures of 48+ in both services and manufacturing in order to make any real pushback towards the 1.20s against the USD. However, another week heavy on US data (Prelim US GDP q/q Thursday will likely be a key point of analysis) doesn’t bode well for a struggling Sterling. Due to this, I can’t see a recovery anywhere near the 3% lost over the last few days. In a busy week, the G20 will also have their latest meeting, with comments made by policy markets likely to be highly scrutinised.