Bank of England retail report weakens pound

The pound slumped yesterday, after a new report from the Bank of England painted a gloomy picture for the outlook of the UK’s retail sector.

Sterling starts this morning on poor form; the GBP/EUR exchange rate is down to €1.1423, while the GBP/USD exchange rate is down to US$1.4059. The GBP/AUD exchange rate is down -0.4% to AU$1.8313, while the GBP/NZD exchange rate is flat at NZ$1.9535. The GBP/CAD exchange rate has fallen to C$1.8162.

Read on to see what the Bank of England has said that weighed on the pound yesterday…

What’s been happening?

The pound was left weak yesterday after a new report released by the Bank of England (BoE) warned that slowing consumer spending was having an adverse effect upon the retail and leisure sectors, stating that there was ‘some evidence of financial distress.’

On top of this, the latest Confederation of British industry (CBI) data covering March showed a surprise contraction in reported sales, with the index falling from +8 to -8 instead of slipping to +7 as expected.
This was the first time in five months that the index had entered negative territory.

However, the GBP/EUR exchange rate was able to cling to opening levels as continuing fears of a global trade war and strong US domestic data boosted demand for the US dollar, undermining euro appetite.

Markets were concerned by reports that Beijing was prepared to levy retaliatory tariffs against the US in response to Donald Trump’s plans for import duties on around US$60 billion worth of annual goods imports from China.

Investors were therefore concerned over the impact that these trade disputes might have on Eurozone policy, prompting them to move out of the euro and into the more stable US dollar.

GBP/USD slumped after the latest US fourth-quarter GDP reading, which was revised from 2.5% to 2.9%, easily beating the already upbeat predictions for a revision to 2.7%.

What’s coming up?

The pound is likely to spend the day reacting to this morning’s net consumer credit, mortgage approvals, and finalised fourth quarter GDP figures.

Consumer credit is a useful proxy for household sentiment, so markets will be assessing the data to see how it fits in with the overall picture of weaker consumer activity painted by the Bank of England in its agents summary of business conditions report yesterday.

Meanwhile, GBP/EUR could see further volatility due to the release of preliminary March consumer price index figures for Germany at midday.

Price growth is expected to remain at a consistent 0.5% month on month, which is unlikely to particularly boost demand for the euro.

The GBP/USD exchange rate is also likely to see further volatility given the release of today’s personal consumption expenditure figures, which are the Federal Reserve’s preferred measure of inflation.