FX Focus: Pound slumps after retail sales figures disappoint

The pound declined sharply on Friday, after data showed retail sales suffered an unexpected slowdown in January, growing at the slowest rate for more than three years.

Sterling was 0.50% lower against the dollar, trading at $1.2425 after climbing above $1.25 in the previous session. The UK currency also declined 0.24% against the euro, fetching €1.1668, having previously hit a 10-day low of €1.1636 earlier in the session.

According to the Office for National Statistics, retail sales grew at 1.5% in January compared to a year ago, the lowest growth since November 2013, while Average store price rises lifted by 1.9% over the year, as inflation continues to rise.

On an annual basis, retail sales grew just 2.6%, down from expectations of a 3.9% jump, the worst figure in more than a year.

"All the numbers today show a downward trend and the anticipated knock to consumer spending from rising inflation may already be evident," said Neil Wilson, senior analyst at ETX Capital.

"Households are clearly starting to feel the effects of the pound's fall in value and this will only get worse as prices rise over the coming months as hedging contracts expire."

Across the Atlantic, meanwhile, the dollar continued to trade in erratic fashion, in keeping with a trend that has seen the US currency alternating losses to gains during the week.

The dollar index, which measures the currency's strength against a basket of international rivals, touched a four-week high on 14 February as the Federal Reserve 's Janet Yellen told the Senate Banking Committee that interest rates are likely to rise sooner rather than later.

However, the greenback could not sustain and fell heavily on Thursday, before mustering a recovery in the final session of the week.

The dollar rose 0.22% and 0.16% against the euro and the Swiss franc, trading at 0.9389 euro cents and CHF0.9987 respectively, also climbing 0.43% against its Australian counterpart to AUD$1.3047.

However, its performance against the yen was less positive, as it fell 0.42% to ¥112.76, while it was broadly unchanged against the Canadian dollar, exchanging hands at CAD$1.3082.

"The visible fact that the Greenback was sold off this week despite the positive economic data from the US and hawkish Yellen comments continues to highlight how the currency has been 'Trumped'," said FXTM research analyst Lukman Otunuga.

"Political risks and the lingering Fed uncertainty have left the Dollar vulnerable [...] amid the escalating Trump developments. Markets are still seeking the long sought clarity on the fiscal stimulus and tax cuts while fears of protectionist policies impacting U.S growth have left participants edgy."