Pound Sterling Down vs Dollar, Euro and Others on Retail Sales Disappointment and Lower Inflation Data

The pound dollar rate tumbled by nearly 100 points following Tuesday's inflation data, add to that confirmation that retail sales are starting to stagnate and we get confirmation on just how vulnerable the UK currency is looking at present.

At the time of writing (22/08) the following rates are noted:

• The pound to euro exchange rate (GBP/EUR) is 0.03 pct higher on a day-on-day basis at 1.2490.
• The pound to dollar exchange rate (GBP/USD) is 0.04 lower at 1.6587.
• The pound to Australian dollar rate (GBP/AUD) is 0.17 pctlower at 1.7796.
• The pound to New Zealand dollar rate (GBP/NZD) is 0.04 pct lower at 1.9722.

"Those with a requirement to sell sterling may wish to take advantage of this movement, whilst US dollar buyers should consider the longer term effects a weak pound may have," says Carl Hasty at Smart Currency Business in reaction to the sharp moves witnessed this week.

(Note: Your bank will add a discretionary charge to the FX rates quoted here. However, an independent FX provider will seek to undercut your bank's offer, and in some cases can deliver up to 5% more FX. Please learn more.)

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What a roller coaster this week has been. Monday saw the pound rally, Tuesday saw it slump and Wednesday it is rallying again and now Thursday delivers another slump.

Sterling notched a new early April low as weaker than expected U.K. consumer spending offered more evidence of how the British economy has come off a boil.

Retail sales rose by a mere 0.1 percent (m/m) in July, just a quarter of forecasts of a 0.4 percent (m/m) gain. Meanwhile, the 2.6 percent rise in the annual number was the slowest since November.

"Sterling has rapidly fallen out of favor this summer as more and more hop off the early rate hike bandwagon," says Joe Manimbo at Western Union.

The much anticipated Bank of England (BoE) Minutes for the month of August revealed that BOE policy makers were split on an interest rate hike.

The interest rate vote (7-2) showed two MPC members (BOE’s Weale and McCafferty) were calling for a 25 basis-point rate hike in August justified by the strong economic growth in the UK.

This suggests the bank is edging towards a rate rise, however this month's data could see Weale and McCafferty quickly run back to their colleagues. A 9-0 vote next month will be highly negative for GBP.

Wednesday: Why Watch the Bank of England Minutes?

All eyes will be on the BoE MPC minutes today.

"The initial focus will be on the voting breakdown. Our economists see risks Martin Weale may have voted in favour of an immediate rate hike. Surveys show the market consensus forecast is for a 9-0 vote, although only just. This suggests an 8-1 vote will trigger a knee-jerk move higher in GBP, while a 9-0 vote will be seen as GBP negative," say Lloyds Bank Research.

Fresh blow for those hoping for better GBP levels

Those selling sterling will be dismayed by the latest UK inflation figures as they certainly weakened their hand.  

The UK CPI came in at 1.6% versus 1.8% eyed remaining well below the 2% benchmark as it missed forecasts for second month out the past three.

"The news on the inflation front destroyed any hopes of BoE rate hike in the foreseeable future despite relatively hawkish remark this weekend by UK central bank governor Mark Carney which suggested that the BoE may not wait for wage gain before embarking on normalizing monetary policy," comments Boris Schlossberg at BK Asset Management.

Schlossberg is adamant that there is no reason for the Bank of England to act on interest rates noting that the data from the UK shows that price pressures are non-existent on both the wage and cost of goods fronts.

"Given the current disinflationary conditions the BoE is unlikely to even consider rate hikes until Q2 of 2015 and that is likely to put further pressure on the pound as traders adjust their expectations. Sterling fell through the 1.6650 support as it once again tested the 200 period moving average and could test the 1.6600 level later in the day as shorts press their case," says Schlossberg commenting on the impact the news has had on the sterling dollar rate.

The biggest decliners in the CPI complex were clothing and footwear which fell -5.7% versus a gain of 0.6% in June. Furniture and equipment costs were lower as well by -1.5% versus 0.1% the month prior. Producer prices were lower as well with PPI declining -1.6% versus -1.1% expected.

UK payments industry sees new 'retry' directive launch

From Monday 1 September 2014 a retry process will be extended within the banking industry to help customers avoid late payment charges on their account.

The process means that when a customer’s Standing Order, Direct Debit or Future-Dated Payment ‘bounces’ because of insufficient funds in the account, the payment will be processed again by their bank or building society, later the same day.

This gives customers the opportunity to pay cleared funds into their account, which will allow the ‘retried’ payment to be successfully processed the second time around.

All participating banks and building societies will give customers until at least 2pm¹ to pay cleared funds into their account, but this is the minimum that they will offer – some might offer a cut-off time later than 2pm.
However, Payments Council research undertaken last year showed that more than eight out of ten customers thought that a 2pm timescale would give them sufficient time to pay cleared funds into their account.

Introduction of the retry process is the result of a collaborative banking industry initiative, led by the Payments Council in response to customer-demand.

It builds on an agreement reached in June 2013 between the Financial Conduct Authority (FCA) and seven of the UK’s biggest high street banks for them to use a same-day retry system.