Sterling Swings Lower


UK retail sales unexpectedly contracted by 0.6% m/m against a median forecast for a 0.5% m/m rise. November figures also revised slightly lower. This follows the sub-forecast December CPI outcome, of 1.3% y/y, and underwhelming November industrial production and GDP data. Cable dove by nearly 80 pips in making an immediate post-data low at 1.3040, with the data maintaining expectations for the BoE to cut the repo rate by 25 bp as soon as the January 30 Monetary Policy Committee meeting. Subsequently, Cable fell further to print a new low for the day at 1.3025.

The retail sales figure is particularly disappointing as it incorporated Black Friday sales and the Christmas period, and conditions after the election on December 12. Monthly retail sales have been flat or negative since July. UK shoppers are very fickle and as the pre-election worries may have had a disproportionate impact, updates and revisions from the January sales will be of particular interest, especially if the BOE does indeed move to cut rates at the end of this month.

I still think the BoE will refrain from cutting rates this month, and instead opt to up the dovish guidance. Markets tend to get ahead of themselves and the raft of Dovish comments from members of the MPC still have time to be curtailed and cooled before the meeting in two weeks. Policymakers will still be looking to see the full impact that the lifting of Brexit and political fog has had since the election in mid-December, especially with the global economy looking to be holding up.

It’s been a positive week for Sterling, with Cable recovering from the Tuesday morning lows below the vital and psychological 1.3000 at 1.2954 to spike over 1.3100 to 1.3116 earlier today. GBPJPY has risen steadily all week, as the Yen lost favour, from Monday lows at 142.35 to the high earlier today at 144.37, while the Guppy currently trades back down some 60 pips at 143.75.

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Stuart Cowell

Head Market Analyst

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