Although all currencies have been under pressure after Thursday’s surprising 25 bps hike in the discount window to 0.75%, the pound sterling is taking is harder than others on the back of a poor retail sales report and more concerns over the country’s fiscal position.
UK retail sales excluding fuel fell 1.2% month-over-month in January despite calls for a smaller 0.5% pullback and the prior 0.5% gain, and annual sales rose 2.6%, beating forecasts for a 1.1% pickup, but slower than December’s 2.9% gain.
GBP/USD lost 37 pips on the announcement, although the losses were short lived, and were quickly recovered.
Meanwhile, after 20 influential economists attacked the UK government for failing to cut spending last week, 67 economists including two Nobel Prize winners have backed the Prime Minister, arguing that it is too early to withdraw stimulus.
In articles in the Financial Times, both Joseph Stiglitz and Robert Solow have argued that a move geared at reducing the UK’s budget deficit will stifle the embers of economic recovery in the island-nation, agreeing with the assessment from the Chancellor of the Exchequer, Alistair Darling.
The comments add to the woes of the pound sterling which has been under pressure in part because of its deteriorating budget position.
GBP/USD last traded lower by 132 pips at 1.5397, after trading in a range of 1.5357 to 1.5542 today. Short term resistance lies at 1.5816 with support at 1.5296.
EUR/GBP last traded higher by 651 pips at 0.87773 after trading between 0.87033 to 0.87913 today. Short term resistance lies at 0.87481 with support at 0.86580.
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