Weak UK retail sales undermine pound

Poor retail sales figures weakened the pound on Friday and left questions hanging over the outlook for the UK economy.

The pound starts this week on soft form. GBP/EUR is stuck at opening levels of €1.1289, while GBP/USD has inched down -0.1% to US$1.4009. GBP/AUD is flat at AU$1.7700, GBP/NZD at NZ$1.8972, and GBP/CAD at C$1.7579.

Read on to see how markets were feeling about pound Sterling, the euro, and the US dollar at the end of last week…

What’s been happening?

The pound was left flat against the euro and slumping versus the US dollar on Friday after the latest UK retail sales figures disappointed.

Data covering January showed that sales including petrol increased just 0.1% month-on-month, compared to the 0.5% expected, while year-on-year sales grew 1.6% instead of the forecast 2.5%.

Although January is always a quiet month in terms of retail sales, with consumers tightening their belts after the Christmas splurge, the worse-than-anticipated growth in sales contributed to fears that high inflation coupled with low wage growth is muting the spending power of UK consumers.

GBP/EUR was prevented from making losses thanks to a softer euro, which was partly due to the strength of the US dollar, but also because of a lacklustre Eurozone data calendar.

Markets were largely ambivalent in reaction to comments by European Central Bank (ECB) official Benoit Coeure, who said that the Governing Council would soon need to adjust the tone of its monetary policy communications - echoing what was said after the last policy meeting and suggesting that the ECB wants to start bracing the markets for an eventual withdrawal of monetary stimulus.

GBP/USD tumbled after strong data covering housing starts, building permits and consumer sentiment were all published in the afternoon.

The University of Michigan sentiment index surprised forecasts by climbing from 95.7 to 99.9, instead of the slight downtick to 95.5 predicted.

What's coming up?

The data calendar is virtually empty today, which is likely to leave GBP/EUR and GBP/USD fluctuating in response to more long-term concerns, such as Brexit, a weak inflationary outlook in the Eurozone, and the strong expectations of a rate hike from the Federal Reserve next month.

Eurozone current account and construction output figures for December could cause some flutters for GBP/EUR.

There’s nothing on US data calendar today, and the only UK development will happen after trading has finished, when Bank of England (BoE) Governor Mark Carney gives a speech in London.

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Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.