Sterling Declines After Weak Retail Sales Data

On Friday, the British pound declined after the retail sales data turned out to be weak and served as a reminder for investors that the British economy’s outlook is not so great.

There was a 0.26% drop in sterling against the US dollar, which saw it come down to $1.236. On Thursday, the British currency had managed to reach a peak of $1.244 but was unable to retain it.

As a matter of fact, Thursday’s value was not very far off from the highest level that the British pound had seen since October of last year.

The data

There was a 0.29% in the euro against the British pound, as it reached 87.69 pence, after dropping to a low of one month at 87.22 pence a day earlier.

On Friday, new data released in Britain showed that there had been an unexpected reduction in consumer spending in the country in the month of December.

There was a 1% decline in the volume of retail sales as compared to the numbers in November, which is an indication that interest rate hikes and inflation are taking a toll on consumers.

This turned out to be a considerably worse performance because economists had actually been predicting a rise in consumer spending of 0.5%.

The impact

Market analysts said that the disappointing retail sales data had served as a reminder to the markets that things are not as good as they may want to believe.

This year has seen the British pound record a rise of 2% against the US dollar, as investors are hoping that the Federal Reserve’s interest rate hikes may come to an end soon.

It was these interest rate hikes that had seen the dollar surge in 2022 and the Fed might decide to slow down or pause, given that inflation appears to be cooling down.

The data on Wednesday had shown that while inflation in Britain was no longer at the 11.1% that it had reached in October, but it was still high in December at 10.5%.

Further details

It should be noted that this headline inflation number is significantly higher than that of the United States and the eurozone which has inflation rates of about 6.5% and 9.2%, respectively.

This has bolstered expectations that there will be more interest rate hikes delivered by the Bank of England (BoE) in this year.

According to market analysts, the British currency may soon have to face economic reality because Britain’s economic performance is expected to be far worse than the eurozone and the US this year.

They said that the US and Sterling pair had already done a lot and there would be some retracement expected.

On Friday, separate data showed that consumer confidence in Britain had dropped in January for the first time in three months, which brought it to almost historic lows.

There was a 0.17% rise in the US dollar index, which measures the currency against a basket of its peers. On Friday, its value was 102.21, after it had dropped to a low of eight months on Wednesday.