Sterling backs off two-month high after grim data

Economies.com
2024-05-24 07:44AM UTC

Sterling fell in European trade on Friday against a basket of major rivals, extending losses for the second day against the US dollar and moving away from two-month high on profit-taking, following grim UK data. 

 

Earlier UK data showed the economy might be shrinking faster than expected, which could prompt the Bank of England to accelerate plans to ease policies. 

 

The Price

 

The GBP/USD fell 0.2% to $1.2676, with a session-high at $1.2700. 

 

The pair lost 0.15% yesterday, the first loss in five days away from a two-month high at $1.2761. 

 

Grim Data

 

Earlier UK data showed retail sales fell 2.3% in April, the worst pace since December, and passing estimates of a 0.5% drop.

 

The data shows the UK GDP is likely shrinking faster than expected in the second quarter, as retail sales and consumer spending represent over 70% of total GDP.

 

UK Rates

 

There’s now a 50% chance the Bank of England will cut interest rates in June, and an 80% 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, the lowest such gap since March 2022, and it’ll likely widen to 50 basis points in June if the BOE went ahead with an interest rate cut, in turn weighing on the pound. 

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