Sterling plunged to a three-month low against the dollar on Thursday as the U.S. currency's broad-based strength swept away recent pound gains which were driven by the appointment of a new, potentially high-spending British finance minister.
The pound paid little attention to data showing a rebound in UK retail sales, ticking higher briefly before resuming its slide.. By 1245, it was down 0.5% to $1.2858, having earlier plumbed a low of $1.2850.
Sterling has now lost 1.4% this week, ceding all the gains it made last week when the appointment of Rishi Sunak as finance minister spurred hopes the March 11 budget would unveil significant fiscal stimulus to shore up growth.
Against the euro it fell 0.3% to one-week lows around 83.9 pence.
"In the very short term it's all about the dollar being the outperformer," said Colin Asher, a strategist at Mizuho.
The dollar has surged to three-year highs against a currency basket and shows no sign of retreat, as superior U.S. economic growth and relative immunity to damage from the coronavirus outbreak make it a global safe-haven of choice.
Its strength has pushed the euro down almost 3% this month while the yen has fallen 3.3% .
"The better-than-expected pickup in UK retail sales volume failed to offset the drag to sterling from heightened downside risk to global economic activity," Commonwealth Bank of Australia said of the moves.
Data earlier showed retail sales up 0.9% on the month in January on a seasonally adjusted basis, after a 0.5% fall in December - the biggest rise since March
That comes after an above-forecast inflation reading on Wednesday.
Mounting expectations of fiscal stimulus had driven money markets to start pricing out Bank of England interest rate cuts this year but expectations have crept higher in the past two days; they now show a roughly 80% chance of a 25 basis-point cut in December versus 69% early Wednesday .
But many analysts say data may continue to surprise to the upside due to the post-election bounce.
"That means it is by no means a given that the next Bank of England (interest rate) move will be downward," Asher added.
The other concern is that both the European Union and Britain appear to be hardening their stance before talks begin next month to thrash out post-2020 trading arrangements.
An adviser to the EU's chief trade negotiator said talks would be "rather difficult," especially due to "level playing field" clauses on fair competition while a top British Brexit adviser said accepting EU supervision of level playing field issues goes against the point of Brexit. (Reuters)
Source: www.businessworld.ie
