The latest retail sales figures in the United Kingdom showed more robust performance, which helped boost public optimism about the pace of economic growth. Better prospects for economic rebound have led to the stronger forex position of the sterling, particularly against the euro. The rally of the British currency in the foreign exchange market was also further supported by the speculations that the Bank of England will soon raise the base interest rates in response to the soaring inflation.

Today’s (February 18) forex rally of the sterling has placed it trading at €1.195 from the previous value of €1.18. On the other hand, the pound also strengthened against the dollar. From the previous $1.610 level of the sterling, it is now valued at $1.620. This rally was primarily buoyed by the stronger retail sales figures. According to the Office for National Statistics, the volume of retail sales in the United Kingdom rose to 1.9%, which is comparably higher than the predicted 0.5% growth in that sector.

Currency traders reacted positively to the stronger performance of UK’s retail sector. The recent retail sales figures served as a further affirmation that the economic condition in Great Britain is significantly improving after the 0.5% contraction in the GDP during the fourth quarter of last year. Nonetheless, market analysts have cautioned equity investors and currency traders they should not over-stretch their optimism about the markets and take too much risk. It should be noted that there the monthly figures remain volatile.

As what an analyst from Commerzbank has noted, the recent robust rebound in the retail sector can be partially credited to a revising down of the dismal fourth-quarter figure in 2010. It should also be recalled that last year’s disappointing holiday season retail sales figures were also affected by the bad weather conditions. Hence, the recent retail sales data may not be sufficient to gauge the pace of UK’s economic recovery.

The current figures are only 0.5% higher than the November data of last year. This is not enough to make sweeping assumptions about the general economic status of the United Kingdom. As what the comparative retail sales growth indicates, the market trends are actually slower than they ought to be. This year’s first-quarter projections still need further data to be more definitive, especially when it comes to forecasting GDP growth.

Last holiday season, the volumes of total retail sales in the United Kingdom have significantly declined. The actual decrease 1.4% is much worst than the estimated 0.8% drop.

Despite of the various indicators of economic slowdown last year, most of those who are interested to make money through the forex market are betting on the high probability that the Bank of England will soon raise the interest rates. These speculations contributed in the recent market rally of the sterling. UK’s soaring inflation is the main factor that fuels the speculation about an imminent rate hike.