GBP Suffers: Retail Sale Slump Ensures Bank of England Inspired Rally Runs Into Trouble

However, the strength was short-lived - Thursday saw the release of data showing the UK consumer continues to struggle and as we move into the weekend we note sentiment towards the currency has stabilised.

The sterling exchange rate complex looks as follows:

• The pound to euro exchange rate (GBP/EUR) is 0.29 pct higher at 1.2524.
• The pound to dollar exchange rate (GBP/USD) is 0.06 pct lower at 1.6571.
• The pound to Canadian dollar rate (GBP/CAD) is 0.04 pct higher at 1.8155.
• The pound to Australian dollar (GBP/AUD) is 0.04 pct lower at 1.7818.

If you are holding out for better exchange rates then don't hesistate, ensure your FX provider has the relevant buy order in place for when your rate is achieved. Likewise, if there is a threshold you are not willing to cross to the downside ensure stop-loss orders are in place. Please learn more here.

Retail Sales Spoil the Party

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.

Bank of England Gives Mid-Week Support

The release of notes from the Monetary Policy Committee's monthly meeting is usually a boring affair owing to the fact that votes have been unanimously against raising rates.

This scenario has been in place for near on 5 years - so markets are taking notice now that 2 members have changed their vote.

Martin Weale and Ian McCafferty posted the first votes to raise rates since Summer 2011, with both supporting a 25bp tightening.

Only around 5% of economists expected a 7-2 outcome: around 60% expected 9-0, and 35% 8-1, hence the reaction in exchange rates is understandable.

Reactions to the vote

• Bank of America Merrill Lynch's Nick Bate:

"That the vote was more hawkish than expected was amplified by Governor Carney’s comments at the Inflation Report press conference last week. He gave little mileage to the 'earlier rate rise might help deliver a smoother tightening path' view, when he already knew that two members had (at least partly) used that argument to vote for a rate rise.

"Thus, there may be even more questioning of whether he is speaking for  himself when he makes speeches/comments/testimony, or whether he is trying to  convey the aggregate sentiment of the committee. More broadly, the market  volatility arising from some of his comments in recent months is notable.

"Even after today’s surprise, we maintain our expectation of a first rate rise in February next year."

• Andy Scott, at foreign currency specialists, HiFX says:

"It’s surprising in a way to see members voting for rate hikes already given the external downside risks that have been appearing around the world; whether it’s weak economic growth or geopolitical risk along with soft inflation.

"Sterling’s reaction was quite interesting as it jumped to day highs against the U.S. dollar and the euro at 1.6678 and 1.2545 respectively, before weakening somewhat.

"A month or two ago, before Carney proved he likes to provide forward guidance for certainty mixed with additional conditions along the way as he deems necessary, sterling would have jumped higher and likely moved higher through the day.

"Now though, the markets seem to be saying ‘we’re not going to get too caught up in the idea of a rate rise since we’re a lot less certain of one’. Carney, at least in the markets’ eyes, appears to be unreliable or at best inconsistent."

• Philippe Gudin at Barclays Research says:

"We expect the support for a rate increase to grow in the coming months and we foresee the first hike taking place before year end.

"The MPC reiterated the forward guidance introduced in the February Inflation Report. In particular, it repeated that when rates do start rising it is expected to be only gradually but will be dependent on economic data.

"We expect the pace of rate hikes to be slow and, in particular, to slow down in the second half of 2015 as growth moderates and fiscal policy is tightened after the elections."