Pound Slides as Weak Retail Sales Damp BOE Rate-Hike Chances

(Bloomberg) -- The pound extended this week’s decline to drop below $1.30 as a slowdown in U.K. retail sales cast doubt on the argument for an interest-rate hike.

Sterling touched a 10-month low as the weak spending followed disappointing inflation data and a tumultuous week of politics. Money-market pricing for a Bank of England rate move next month has slipped to 78 percent, from 84 percent on Tuesday.

“Pound suffers on the back of the data with cable below $1.30 but that reading should not be weak enough in order to drive rate expectations much lower,” said Manuel Oliveri, a strategist at Credit Agricole SA. “Hence, hard to see the pound going much lower on the back of this and a rebound may be on the cards.”

The pound fell 0.5 percent to $1.2999 as of 9:38 a.m. in London, taking a three-day drop to 1.8 percent. It slipped 0.3 percent to 89.33 pence per euro in a fourth day of declines.

Banco Santander SA doesn’t see the BOE hiking rates next month, based on an underperforming economy and political risk. Prime Minister Theresa May survived grilling from lawmakers Wednesday, with no leadership challenge emerging following two weeks of near-defeats on Brexit legislation and the resignations of senior ministers.

The yield on benchmark 10-year gilts was little changed at 1.23 percent, ahead of a sale of 2 billion pounds of debt maturing in 2057. RBC Europe strategists see the sale benefiting from strong cash-flow dynamics over the coming week given large redemptions, a lack of supply in the sector until October and relative value compared to similar debt.

--With assistance from Anooja Debnath.

To contact the reporters on this story: Ellen Milligan in London at emilligan11@bloomberg.net;Charlotte Ryan in London at cryan147@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Scott Hamilton

©2018 Bloomberg L.P.