LONDON: Sterling slipped on Thursday ahead of data expected to show a fall in UK retail sales, and a day after the government cut its economic growth forecast for this year when announcing the budget.
A soft retail sales report could push sterling below $1.62, analysts say, and would back up the slight shift in interest rate expectations, with money markets now betting on a Bank of England rate hike in August. Prior to Wednesday's budget announcement they had been expecting the first hike to come in July.
Minutes released on Wednesday from the BoE's last policy meeting also suggested policymakers were perhaps not quite as keen to pull the rates trigger as many in the market had anticipated.
"A negative retail figure today could drive the pound lower, and then it will be more likely that the Bank of England will keep rates on hold," said Michael Hewson, currency strategist at CMC Markets.
"If the consumer looks to be under pressure, then increasing interest rates would just add to that," he said.
Retail sales in February are expected to have fallen 0.6 percent on the month, slowing the annual rate of growth to 2.3 percent from 5.3 percent, according to a Reuters poll of economists.
Sterling was down 0.2 percent on the day against the dollar at $1.6210, having hit a one-week low of $1.62 earlier in the day. Sell stops are cited below $1.62, traders say.
Earlier this week, the pound had risen to a 14-month high of $1.6403 after data showed UK consumer prices rising at more than twice the government's 2 percent target pace on a year-on-year basis. Euro/sterling was flat on the day at 86.74 pence.
The euro was also under broad pressure Thursday after Portugal's Prime Minister resigned, paving the way for the country to take an international financial bailout, and Moody's downgraded the ratings of Spanish banks. On Wednesday, British Finance Minister George Osborne cut the 2011 growth forecast to 1.7 percent from 2.1 percent previously. Osborne said soaring oil prices meant inflation would stay between 4 and 5 percent this year.
Also, although borrowing projections for 2011-12 were reduced, borrowing over the 2012-15 period is seen at 36 billion pounds more than forecast in November.
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