The pound slipped after U.K. retail sales data unexpectedly fell in December, increasing the chances that the Bank of England may cut a key interest rate this month.
Sterling dropped 0.2% to $1.3049 and declined against all its Group-of-10 peers as the volume of goods sold in stores and online fell 0.6% in December, confounding expectations of a 0.6% increase. Money markets are pricing a 75% chance of a rate cut on Jan. 30, compared with 62% on Thursday.
Markets are now turning their attention to impending purchasing managers’ indexes for further signs of the BOE’s direction.
“Clearly, there is a chance for a decent rebound of the PMIs next week and this may stay the BOE’s hand,” said Valentin Marinov, a strategist at Credit Agricole SA. “That said, following this week’s weaker CPI and retail sales, the bar for stable rates is getting very high.”
Traders had been speculating that the central bank will cut rates at Mark Carney’s last monetary policy decision as BOE governor after a flurry of dovish comments from policy makers. The yield on 10-year U.K. government bonds was down three basis points at 0.61%, falling a sixth day and on course for its longest streak since August.