Yahoo Finance Pound slumps to nine-month low against the dollar on Brexit worries
The pound has fallen below $1.30 for the first time since September as lower than expected retail sales and fears of a “hard” Brexit unnerved the markets.
The exchange rate against the dollar has been a key indicator sentiment towards Brexit since the EU referendum in June 2016, when the pound had been trading at $1.50 just before the polls closed.
The pound’s slide on Thursday took the currency below $1.30 for the first time in nine months after official data from the ONS showed that retail sales fell 0.5% between May and June, disappointing the markets which had been expecting 0.2% growth.
England’s progress to the semi-final of the World Cup and the warm weather helped boost sales of food but held back spending in other areas. “While hot weather and World Cup celebrations increased food store sales, it was suggested by retailers that these factors resulted in a decrease in footfall in non-food stores; which, along with non-store retailing, resulted in a monthly decline of 0.5% in the quantity bought,” the ONS said.
The data was published amid mounting political uncertainty about the government’s negotiating stance on Brexit and its admission that it intends to publish this summer more than 70 documents spelling out what businesses should do if the UK crashes out of the EU in March 2019. It helped pushed the pound below the $1.30 level.
Economists are picking over the data for clues as to whether the Bank of England’s monetary policy committee will vote to increase interest rates from 0.5% at next month’s meeting. Retail sales account for a fifth of GDP.
Ruth Gregory, senior UK economist at Capital Economics, looked beyond the retail sales data for the month of June. For the second quarter sales had risen “by a whopping 2.1%, the biggest rise in fourteen years”.
While the figures include temporary boosts from the Royal Wedding, she also noted that the big constraint on spending – the impact of inflation on wage rises – was easing. “The recovery in the consumer sector supports our view that an August interest rate hike is more likely than not,” she said.
The pound against the dollar is caught in a “perfect storm”, according to Viraj Patel, foreign exchange strategist at Dutch bank ING. He is referring to the subdued nature of the UK economy, the uncertainty surrounding Brexit and strength of the dollar, which was further buoyed on Thursday by data showing the number of Americans claiming unemployment benefits is at the lowest level for more than 48 years.
The pound has also slipped against the euro to below €1.12.
