The British pound staged an incredibly impressive intraday recovery. Having sold off to a fresh one month low after the disappointing retail sales report, the pound rebounded to end the day unchanged as the US dollar began slipping after the Chinese announcement.
This should not underestimate the fact that UK consumer spending was very weak in the month of April however. Originally expected to rise by 0.6 percent, retail sales fell for the first time in 3 months by 0.1 percent. There was an upward revision to the March data, but not enough to offset the decline that drove the annualized pace of spending from 5.0 percent down to 4.2 percent. This number does serious damage to the expectations for future rate hikes and goes a long way to explaining why the Bank of England may have chosen not notch up their degree of hawkishness after the last rate decision. With inflation and spending slowing, the central bank is in no rush to tighten monetary policy. Some traders may be waiting for this bias to be confirmed in next week?s release of the BoE minutes before taking the GBP/USD much lower. Aside from the minutes, the UK will also be releasing the CBI industrial trends survey, housing and lending data.