Pound Falls Versus Peers as Retail Sales Cloud BOE Rate Outlook

  • Sales including auto fuel decline 0.6 percent in October
  • Sterling climbs to highest in two weeks against dollar

The pound fell against 14 of its 16 major peers after a report showed U.K. retail sales dropped more than economists predicted in October.

Sterling retreated from Wednesday’s three-month high versus the euro amid speculation the report diminishes the case for an early boost to Bank of England interest rates. It jumped against the dollar after Federal Reserve policy minutes published Wednesday signaled the pace of U.S. rate increases would be gradual.

The Office for National Statistics in London said retail sales including auto fuel declined 0.6 percent from September. That’s more than the 0.5 percent drop forecast in a Bloomberg survey.

“The retail-sales data disappointed across the board,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “The market is still trying to assess when the BOE will hike interest rates and how fast it will hike interest rates.”

Mixed economic data are making investors doubt higher U.K. borrowing costs will happen anytime soon.

Citigroup’s Economic Surprise index for the nation shows that while economic releases are improving, they’re still falling short of analysts’ forecasts. Forward contracts based on the sterling overnight index average, or Sonia, aren’t pricing in a BOE rate increase until after January 2017.

Federal Reserve policy minutes published Wednesday point toward a December liftoff in the U.S., while signaling a shallow path for any increases next year.

Two-Week High

Britain’s currency slipped 0.3 percent to 70.16 pence per euro as of 4:58 p.m. London time, having touched 69.83 pence on Wednesday, its strongest level since Aug. 6. The pound rose 0.5 percent to $1.5320, after touching a two-week high.

U.K. government bonds advanced, with the 10-year yield falling four basis points, or 0.04 percentage point, to 1.89 percent. It slid earlier to 1.88 percent, the lowest this month. The 2 percent gilt due September 2025 rose 0.35, or 3.50 pounds per 1,000-pound face amount, to 101.04.

“No two ways about it, this morning’s retail-sales data were a disappointment and the pound is selling off across the board as investors reduce holdings,” Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London, said by e-mail.

Still, overall “the economy is moving in the right direction,” he said. “I expect today’s pound selloff to have limits.”

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