The pound has been sold off during overnight trade after the austerity measures announced yesterday coupled with the bank of England minutes combined to paint a picture of an economy in disarray.
Evidence of a weakening UK economy came in the form of retail sales which posted 0.5 points lower than expected for last month. Retail sales turned a bad situation worse with the posted figure coming in well below the expected +0.3% at -0.2%, a whole half point below expectations.
Weak UK data has contrasted with earlier stronger-than-expected German activity data dropping the pound exchange rate to a 7 month low against the euro and breaking below trend-line support for the first time since 2008.
The BoE’s chief economist Spencer Dale was quoted on Thursday as saying that uncertainty over inflation and the speed of the economic recovery means policymakers must alter their views as circumstances change.
“Sterling has come under pressure since the minutes, which have increased the market’s view that we are likely to see more QE, possibly at the November meeting, the same month when the BoE releases its inflation report,” said Geraldine Concagh at AIB Group Treasury in Dublin.
The dollar trimmed gains against the euro on Thursday as investors re evaluated comments from U.S. Treasury Secretary Timothy Geithner and realized they may not have warranted a jump in the U.S. currency earlier in the day.
The dollar approached a 15-year low against the yen in early European trade while the euro neared the day’s high. The U.S. currency remains on the back foot on speculation the Federal Reserve may implement more quantitative easing next month, which would be negative for the dollar.