Sterling has weakened this morning after disappointing UK retail sales figures and weaker than expected services sector data.
Retail sales dropped by 1.4% month-on-month in March which is a significantly larger fall than economists had expected (-0.3%). On an annual basis retail sales only rose 0.9% which missed expectations for +2.8% and is a major drop from February’s 7.2% increase in retail sales. Although this morning’s services PMI data was still in positive territory at 58.3, it also fell short of expectations for 62.6.
Together these pieces of data are adding to concerns that a slowdown in the UK economy is underway, as spiralling prices and energy costs appear to be creating a deepening cost-of-living crisis in the UK, which has caused traders to dump the Pound this morning. The Bank of England governor is due to speak later this afternoon, but, given his more recent pessimistic comments, it seems unlikely he’ll throw sterling any meaningful support anytime soon.
As a result, we’ve seen a large drop in the GBP/USD of around 1.2% today, which takes it to the lowest levels since November 2020. The GBP/EUR has fallen over 1-cent this morning and now trades at a 2-week low. There are no important data releases on the UK calendar next week, so Pound sellers will be hoping for some weaker figures out of the US and Euro-zone which both have key growth (GDP) data releases. Finally, market risk appetite will continue to be a major driver of the rates and developments in Ukraine will continue to affect this.
