Sterling weakens on downbeat UK retail sales

The EURGBP cross remains firm around 0.8705 during early European trading on Friday, as the Pound Sterling weakens against the Euro after the weaker-than-expected UK economic data. The IFO business sentiment index report from Germany will also be released later on Friday.

Data released by the Office for National Statistics (ONS) showed that the UK Retail Sales increased 0.9% MoM in June, versus a fall of 2.8% prior (revised from -2.7%). This came in weaker than the market consensus of a rise of 1.2%.

On an annual basis, Retail Sales climbed 1.7% in June compared to a fall of 1.1% prior (revised from -1.3%), worse than the estimate of a 1.8% rise. GBP attracts some sellers in an immediate reaction to the downbeat retail sales data.

As widely expected, the European Central Bank on Thursday decided to keep interest rates steady amid an uncertain environment due to trade disputes. The ECB has cut interest rates at each of its four meetings so far this year, bringing its key deposit facility from 3.0% in January to 2.0% in June.

ECB President Christine Lagarde said the risks to the economy remained “tilted to the downside” and global trade tensions could “dampen exports and drag down investment and consumption.

Lagarde further stated that the ECB was “well-positioned to wait and see” as inflation was at 2.0% and that the central bank’s projections pointed to the rate stabilising at that level in the medium term.

Money markets are now pricing in less than a 30% odds of a 25 basis point (bps) rate cut when the ECB meets next on September 11, which might support the shared currency.

(Source: OANDA)