Sterling hits four-month low on weaker retail sales

Sterling extended losses and fell more than half a percent on the day below the $1.30 line as weak June retail sales data raised concerns a central bank rate hike next month may not be a done deal yet.

June retail sales showed a decline of 0.5 per cent compared to expectations of an increase of 0.2 per cent on a monthly basis, in the latest string of a lacklustre run of data comprising stagnating wage growth and steady inflation.

"The data is not that great but we still expect the Bank of England to raise rates in August in the backdrop of a tight labor market and may signal an extended pause after that," said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The British currency extended losses and fell 0.7 per cent to $1.2984, its lowest since early September 2017. Against the euro, it weakened 0.3 per cent at 89.26 pence.

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Britain’s stock market cut losses and rose 0.2 per cent on the day while British gilt futures rose around 10 ticks after the data.

Market expectations for a 25 basis point August interest rate rise by the Bank of England fell back to 72 per cent from close to 80 per cent earlier this week.

Negative headlines on Brexit have also undermined sentiment towards sterling.

After narrowly escaping defeat in parliament over her plans for leaving the European Union this week, prime minister Theresa May has signaled she would not drop a proposal on Britain's future relationship with the bloc.

"At 1.30, sterling is nowhere near to being fully priced for a worst-case political scenario, but participation in the pound is unlikely to climb much until that worst-case scenario looks a lot more certain," said Stephen Gallo, European head of FX strategy at BMO Financial Group.

- Reuters