Simon Dawson/Bloomberg

Pound Suffers Worst Week Since May Versus Euro on Rates Wagers

Updated on

The pound has its biggest weekly decline since May against the euro as the bullishness on interest rates whipped up by the Bank of England was punctured by economic data.

Sterling slipped 1.8 percent versus the single currency and 0.7 percent against the dollar this week as a report on July 23 showed retail sales unexpectedly declined. That contributed to waning optimism the BOE will raise rates this year, a week after hawkish comments from policy makers pushed the pound to its strongest level against the euro since 2007.

“The June retail sales figures were very disappointing,” said Marshall Gittler, head of global currency strategy at IronFX Financial Services Ltd. in Limassol, Cyprus. “People may just have taken some profits on the disappointment.”

The U.K. retail-sales data came one day after minutes from the Bank of England’s July meeting showed a growing number of the Monetary Policy Committee members saw rising inflation risks.

The pound pared its weekly slide against the euro on Friday, advancing 0.1 percent to 70.74 pence as of 4:10 p.m. London time. It was still lower versus the dollar, dropping 0.1 percent to $1.5498.

Implied yields on short-sterling futures contracts expiring in December fell three basis points, or 0.04 percentage point, to 73 basis points in the week. That’s a sign investors are reducing wagers on higher borrowing costs. The U.K. central bank has held its main interest rate at a record-low 0.5 percent since March 2009.

Retail Sales

Shrinking retail sales in June “definitely undermined the pound” as “markets were expecting a strong number,” according to Peter Frank, global head of Group-of-10 foreign-exchange strategy at Banco Bilbao Vizcaya Argentaria SA in London.

Even so, “there’s optimism that the growth cycle is picking up -- this is good for the pound,” he said.

The yield on U.K. 10-year gilts fell seven basis points, or 0.07 percentage point, to 1.94. The 5 percent bond due in March 2025 rose 0.64, or 6.40 pounds per 1,000-pound face amount, to 126.690.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE