The British pound extended yesterday?s weakness despite the lack of economic data. Although some of the selling can certainly be attributed to broad dollar strength, today?s price action also suggests that traders may be expecting a weaker retail sales number tomorrow. Recent inflation data has already made many traders skeptical about further interest rate hikes, particularly in June.
Prior to the May rate hike, the market was pricing in two back to back doses of tightening. If consumer spending does come out weak, then the Bank of England has no reason to lift interest rates again in the second quarter. Judging from the BRC retail sales report, the outlook for spending is not promising. In the month of April, according to the BRC, total sales decreased from 6.2 percent to 4.7 percent while same store sales fell from 3.9 to 2.4 percent. The BRC retail sales report tends to be a good directional indicator of how retail sales will fare for the same month.