Pound dented by poor retail sales data

The pound was down across the board on Thursday, after weaker-than-expected retail sales hit confidence in the UK's economic recovery.

Figures released by the Office for National Statistics showed retails sales slumped by 0.8% month-on-month, compared to a forecast drop of 0.5%.

Year-on-year sales were up 1.3%, but this fared poorly in comparison to a 5.1% climb year-on-year in January.

Sterling fell 0.37% against the dollar to 1.6181 and dropped 0.57% on the euro at 1.1458. It was also down against the yen and commodity bloc currencies (New Zealand, Australian and Canadian dollar).

The slump on the euro was particularly telling given the strain the single currency was under due to the resurfacing debt woes of the region.

The depressed retail sales figures came on the same day high street giant Next (NXT) lifted profit, but warned of a challenging outlook and just a day after the chancellor held his "pro-growth" Budget and will do little to aid hopes from sterling bulls that a rate rise is on the horizon.

On Wednesday, minutes from the Bank of England's latest Monetary Policy Committee meeting revealed that hawks Andrew Sentance, Martin Weale and Spencer Dale failed to turn any other committee members onto their cause. This had a stronger-than-expected impact on the pound and sent it lower against most major counterparts.

Jonathan Granby, researcher at DailyFX, said: "While rate hike speculation has been keeping the pound well bid on dips, the weakening outlook for UK growth may put a cap on speculation in the near-term. As some of these speculative bids come out of cable, we could well see a move back to the key psychological 1.60 level in coming days as players reassess how likely the Bank of England is to act on inflation.

"Specifically, in light of yesterday's minutes, which revealed the MPC as standing by its assessment that inflation will drop back in the medium-term. We therefore contend that the near-term outlook for the pound is bearish."

But Duncan Higgins, currency market analyst at CaxtonFX, said the fall of the pound could be short-lived.

"With the UK in focus this week it's no surprise to see the pound take a knock following the data. However, with the situation amid the eurozone periphery clearly deteriorating, sterling's downside should be limited.

"Following 7 April, when the ECB are due to hike rates, the market is likely to return its attention to the eurozone debt crisis. At this point, we expect the euro to come back under fire as potential default and bailout scenarios take back centre stage."