Pound undermined by disappointing UK retail data

The pound faced headwinds at the end of last week’s session, following the publication of some lacklustre UK economic data.

So far this morning the pound is mixed, with GBP/USD wavering near a two-month high at $1.2772. GBP/EUR and GBP/NZD are trending lower, at €1.1741 and NZ$2.0721 while GBP/CAD and GBP/AUD are subdued at CA$1.7399 and AU$1.9169.

Looking ahead, will an improving German business sentiment see the common currency strengthen?

What’s been happening?  

The latest UK retail data saw the pound falter as Friday’s session opened                . British retail sales tumbled by 2.4% in April, reaching a four-month low and significantly missing market projections of a more modest 0.4% decline.

Signs of a continually weak retail sector highlighted the UK’s ongoing cost-of-living crisis, dampening GBP sentiment.

However, Sterling closed last week on a positive note, as bullish trading conditions saw the increasingly risk-sensitive currency recoup its initial losses.

Meanwhile, the safe-haven US dollar hit a fresh weekly-low despite an unexpected surge in domestic durable goods orders last month, as investors favoured its more risk sensitive counterparts.

Elsewhere, the euro encountered volatile trading conditions, amid a lack of notable macroeconomic releases and some hawkish commentary from European Central Bank (ECB) policymaker Isabel Schnabel.

The influential rate-setter highlighted the central bank’s data driven approach whilst cautioning against any hasty monetary loosening, citing potentially ‘bumpy’ Eurozone inflation.

As the session neared its end, EUR was also able to capitalise on a weakening US dollar, due to the currency pairing’s negative correlation.

What’s coming up?  

Turning to today’s session, speeches from Federal Reserve policymakers Lisa Cook, Neel Kashkari and Mary Daly could drive USD movement amid a lack of fresh macroeconomic releases. A hawkish consensus could see deferred Fed rate cut bets lift the ‘greenback’.

However, a forecast decline in the American CB consumer confidence survey may later offset USDs upside potential.

A data-light session for the pound could leave GBP vulnerable to market risk dynamics, with any upbeat trade likely to boost the increasingly risk-sensitive currency against its safer rivals.

Similarly, a lack of fresh Eurozone releases may see the safe-haven euro driven primarily by a shifting market sentiment. Elsewhere, dialled up European Central Bank (ECB) interest rate cut expectations may serve to hamper EUR exchange rates.