Retail sales reversal in May sends cable to a near 7-week low

The Bank of England could follow the ‘hawkish’ lead of its American counterpart before the eurozone

The pound is down by 0.24% against the dollar on Friday, extending what has been a poor few weeks for cable. At the time of writing it is at $1.39, its lowest point in nearly seven weeks.

It is much the same for the pound against the euro, which is down by 0.3%. “However, the currency’s stronger long-term performance against its rival meant that it has simply pulled back from yesterday’s 2-and-a-half-month peak,” said Connor Campbell, financial analyst at Spreadex.

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“Blame appears to lie at the feet of the latest retail sales reading out of the UK. Analysts were always expecting a slowdown from April’s 9.2% increase. Yet instead of a 1.5% rise, May saw a 1.4% contraction,” Campbell added.

Markets also reacted to a hawkish shift in tone by the Fed, which boosted the value of the dollar against other major currencies.

Officials at the Federal Reserve are anticipating a rise in interest rates in 2023, earlier than previous estimates. 

The news comes on the back of economic forecasts of quicker growth and higher inflation in 2021.

Lee Hardman, currency economist at MUFG, told Reuters sterling’s strength versus the euro is because the Bank of England could follow the lead of its American counterpart ahead of the eurozone.

“It’s a reflection of the view that the Bank of England is likely to be one of the first central banks to raise rates as well. If the Fed is willing that could give the Bank of England confidence to move earlier,” Hardman said.

The pound’s retreat failed to fully safeguard the FTSE 100, which itself fell 1%, dropping under 7,080. Elsewhere the CAC was down 0.1%, while the CAC was flat at a devilish 6,666.

“As for the Dow Jones, following its latest round of losses on Thursday, coming in the aftermath of a hawkish(ish) Fed, the index is looking ahead to a flat start, leaving it at 33,830,” said Connor Campbell

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