"Sterling hit a two-month high versus the euro [this morning]," says Reuters.- And the newswire provides an answer, too - thanking "strong retail sales and house price data [that] supported expectations that the Bank of England will not cut interest rates and may even tighten by year-end."- In other words, who cares that in the first three months of this year an all-time high of 23,351 people sought individual insolvency through the courts, a 73.4% increase on the corresponding period last year and 12.9% higher than the previous quarter? Lumpus britannicus hit the shops hard in April.

Fill your boots with sterling quick - before the Old Ladies raise base rates and pull the worsted-wool rug out from under us all.- Like-for-like retail sales grew 6.8% last month, said the British Retail Consortium this morning. Time was, that would have seemed wild and excessive - stupid even, like a 4x4 jeep stuck in traffic on Kew Bridge.

But "traders will not be getting carried away with these results," says Helen Dickinson, head of retail at consulting firm KPMG. Near 7% extra spending in one month is nothing to get worked up about anymore. - Of course, only one kind of cashpoint can spit out money fast enough to keep pace. And the average house-price in England & Wales rose 5.05% between January and March, says the Land Registry, up to £192,745. Sales volumes rose 37% from a year ago.- Here in boomtown, London house prices rose 6.29% in the period.

The average London home now costs £306,661. Transaction volumes were up nearly 41%. Ergo, the thinking goes, base rates will rise to head off a bubble in house prices - and that makes sterling attractive to investors searching for yield.- "The recent strength of sterling," muses Tom Tragett, your editor's expert currency contact, in a note. "It seems most unusual - leaving aside the M&A flows - especially given the extremely poor political domestic backdrop and our pretty innocuous economy.

But it all makes sense if you figure that central banks are conducting 'reserve adjustments'...getting out of US dollars...and that some - mostly Middle Eastern banks - clearly favour the Betty Grable."- The Betty Grable? Cable is the name forex traders give to buying sterling when selling dollars. Geddit? But still this doesn't explain the almost phenomenal strength of the proud pound in your pocket.

Sterling has risen from $1.73 to $1.86 in the past month alone. How come? - "Greenspan's famous conundrum has all but gone," Tom notes. "Thirty-year US bond yields have surged as the price of the bond itself has dumped from 97.25 at the mid/end March to 89.50 at the close last week.

This fall in the 30-year bond price as coincided with the rise in sterling over the same period. So someone's exiting US Treasuries and piling into pounds. I reckon it's the Japanese..."- Regular readers will recall that the Bank of Japan has an open position of some several hundred billion dollars, bought when it wanted to depress the Yen and stoke Japan's runt of an export-led recovery in 2003/4. But they might not know what next-door's 'For Sale' has got to do with Japan's post office savings accounts.- "Naturally, Japan's intervention to buy dollars was stuck into US Treasurys," says Tom. "Even when yields dipped below 4%, they still paid a whole heap more than Japan's own zero-rate bank deposits. Now of course, with the Japanese economy on the up-tick, they might have decided it's time to lighten up on their dollar holdings.

The world and his dog know the greenback is due another tumble. Why play sucker and keep hanging on?"- Tom Tragett: "But the Japanese are the biggest holders of US Treasury debt in the world. So they could never be seen selling dollars and buying yen in the open market. It would be like screaming fire in a crowded pub.

The dollar/yen would collapse into free fall. And this makes their position unmanageable..."- So the only way for them to remove the risk of a dollar fall versus yen, says Tom, is to switch the position slowly into another currency. "For example, they would sell their Treasuries - and then sell the subsequent dollar receipts for, say, sterling, for want of a better protagonist.

In order for this not to show up immediately in their official reserve figures they could use Kampo - the Japanese Post Office's life insurance pot - to buy the sterling discretely in the market over a period of several weeks/months."- Take heed, warns Tom. "I am not saying that the BOJ is buying sterling - and I'm certainly not advising anyone goes long GBP/JPY just yet. But clearly someone very big is getting into the pound...and it could be that the Chinese, US, UK and Japanese have done a deal to get Tokyo out of jail when the Chinese Yuan does finally float and sink the dollar."