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Markets

Sterling tumbles on record-low retail data, trade tensions

A drop in inflation fuelled speculation this week that the Bank of England might cut interest rates below zero.
22 May 2020
  • A drop in inflation fuelled speculation this week that the Bank of England might cut interest rates below zero.
  • British five-year government bond yields fell below zero for the first time on Thursday, a day after Britain sold its first bond with a negative yield.

LONDON: Sterling edged lower on Friday against both the US dollar and the euro as fresh data showed retail sales fell by a record 18pc as the coronavirus crisis hammered the economy and while US- China tensions boosted demand for the dollar.

British retail sales fell by the most on record in April due to the lockdown.

In addition, Britain's government borrowed more in April than it has in any month on record, pushing public debt close to 100pc of gross domestic product, the highest since 1963, data showed on Friday.

The data added to a overall lack of good news for the pound, strategists at ING wrote in a note to clients, as Brexit continues to deter pound investors, after the latest round of negotiations ended with scant progress last week.

"With the prospects of negative rates fully on the market's radar and in part priced in by the end of this year and for 2021, the next main hurdle for GBP should be the negative news-flow on the trade negotiations and likely no extension of the UK-EU transition period," ING said.

A drop in inflation fuelled speculation this week that the Bank of England might cut interest rates below zero.

British five-year government bond yields fell below zero for the first time on Thursday, a day after Britain sold its first bond with a negative yield.

Sterling weakened for a third consecutive day against a strong dollar as US-China tensions boosted demand for safe-haven currencies.

The pound was last down 0.45pc versus the dollar at $1.2169 and down 0.02pc against the euro at 89.60 pence EURGBP=D3.

The pound is in the lower band of its recent trading range, as Britain remains one of the countries hit hardest by the pandemic.

The UK's death toll from COVID-19, the disease caused by the new coronavirus, has topped 43,000, the worst in Europe.

Britain's finance ministry said more than 1.8 million mortgage payment holidays had been taken up since March.

The scheme had been due to end in June but was extended for another three months.