Sterling hits four-week low vs dollar after weak UK retail data

LONDON: Sterling fell to a four-week low against the dollar on Thursday after data showed British retail sales were weaker than expected in June, another sign that the UK's economic recovery may be losing momentum.

Retail sales rose 0.1 percent in June from May, less than the 0.3 percent expected by economists. Though overall retail volumes in the second quarter were the strongest for 10 years, currency traders interpreted the numbers as soft, pushing down the British pound.

Sterling hit a low of $1.7008 immediately after the data, its lowest since June 27 and down from $1.7037 beforehand . It was last trading at $1.7017, down 0.2 percent on the day.

It also fell against the euro after the data.

Although the British economy has looked to be recovering strongly this year, June's retail sales add to a run of slightly weaker data. Significantly, wage growth - a key data point for central banks considering raising interest rates - was shown earlier in the month to be lagging inflation.

"The BoE (Bank of England), the Fed (U.S. Federal Reserve) and the ECB (European Central Bank) are all very data-dependent," said Paul Robson, a currency strategist at the Royal Bank of Scotland.

"Forward guidance is assigned to the history books for now, and softer data means the market can gently nudge out the timing of the first Bank of England rate hike."

Minutes on Wednesday of July's Bank of England's Monetary Policy Committee (MPC) meeting hit sterling by not being as hawkish as some had anticipated. Though the nine MPC members discussed the case for an early interest rate rise, they voted unanimously to keep rates at their record lows for now.

In a speech in Glasgow on the same day, Governor Mark Carney said that although the economy had returned to its pre-financial crisis size, the mismatch between strong jobs growth and weak pay was a challenge for the BoE in its rate deliberations.

EURO RISES

The euro rose to a day's high against the pound of 79.26 pence after the retail sales data, from 79.04 pence beforehand , and was last trading at 79.25 pence, up a third of a percent on the day.

Having hit a 23-month low against the pound on Wednesday, the euro was given a boost on Thursday after data showed German business activity expanding more rapidly than expected in July, with the services sector growing at its fastest in three years.

But concerns about the economic impact on the euro zone of tougher sanctions on Russia - the European Union's third biggest trading partner - could cap the euro's gains.

Investors will now be waiting for second-quarter UK gross domestic product (GDP) data expected on Friday. While the numbers do not reflect current economic conditions they will still highlight the fact that Britain is outpacing its peers, currency traders said.

"While strong UK GDP growth could be supportive for the pound the data maybe perceived as somewhat dated and hence the impact need not be pronounced or, for that matter, sustained in the case of sterling versus the dollar," Citi said in a note.