Sterling sharpens decline to five-month nadir after weak data

Sterling tumbled in European trade against a basket of major rivals, sharpening losses for the second day against the dollar and hitting five-month lows following weak UK retail sales data.

Bank of England Governor Andrew Bailey said in recent remarks that inflation will likely approach medium-term targets next month, bolstering the case for a rate cut in June.

The Price 

GBP/USD fell 0.4% to $1.2388, the lowest since November 2023, with a session-high at $1.2456. 

The pair lost 0.15% on Friday, resuming losses amid concerns about the mounting interest rate gap between the UK and the US.

Retail Sales 

Earlier UK data showed retail sales were flat in March, below estimates of a 0.3% increase.

Retail sales constitute 70% of US GDP, and a slowdown indicates a tepid growth rate in the first quarter. 

Bailey

BOE Governor Andrew Bailey said this week that there’s no cause for concern in latest inflation data. 

He expects next month’s inflation numbers to register a sharp drop, and he believes that Europe and the UK  face lower inflation risks compared to the US.

UK Rates

Following the data and Bailey’s remarks, the odds of a UK interest rate cut in June jumped to 70%, with a 95% chance of such a cut in August.

Interest Rate Gap 

The current UK-US interest rate gap stands at 25 basis points in favor of the US, and is set to climb to 50 basis points next month.