Sterling sinks after sales report

The pound has declined versus the US dollar after the UK revealed a surprise drop in retail sales.

The pound is trading at $1.6070, down 0.5%, after the announcement that UK retail sales declined by 0.9% in August, compared with July. Analysts were forecasting an increase of 0.4%, so the news came as quite a surprise to dealers. The pound has gained 2.5% versus the US dollar over the past month, as the UK has posted positive economic indicators such as manufacturing and construction data, telling us that the economy is improving.

Last night GBP/USD jumped when the Federal Reserve decided to keep the quantitative easing (QE) scheme unchanged. Economists have been expecting the Fed to taper its QE programme by €10 billion, but when it was left unchanged dealers bought the pound. The stimulus package by the US central bank has helped the US economy, with unemployment dropping to 7.3%, but it has also kept the US dollar weak as the process entails printing additional US dollars. Since the Fed did not taper the QE scheme last night, speculation may grow that tapering will now be even more likely next time, and this could lead traders to sell the pound.

Spot FX GBP/USD chart

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