Sterling hit a one-month low against the dollar on Friday as surprisingly weak retail sales hinted that the UK consumer might be running out of steam, which could slow growth and limit the need for more interest rate increases.
The pound briefly extended these losses, sliding against the yen after China's central bank said it is raising interest rates and widening the yuan's trading band against the dollar. The Japanese currency's initial strength exacerbated sterling weakness but that move reversed over the course of afternoon trading.
This left the pound down on the back of the retail sales data which cooled some of the market expectations surrounding further Bank of England rate hikes this year, if only marginally.
"With UK household savings ratio at historically low levels and the full impact of past monetary policy action still to bite, we would expect consumer spending to ease in the coming quarters," said Amit Kara, economist at UBS, in a note to clients.
"From a policy perspective, the MPC's current concerns clearly relate to pricing pressures, rapid money supply growth and wage settlements and as such we believe today's retail sales data are unlikely to have a material impact on monetary policy decisions in the near term."
At 1500 GMT the pound was down 0.1 percent against the dollar at $1.9757, having sagged as low as $1.9702, a level last seen on April 10. The pound recovered all its intraday losses against the yen to trade flat on the day at 239.50 yen, while the euro was also flat at 68.33 pence, coming back off its session high of 68.52 pence.
Retail sales unexpectedly fell 0.1 last month, undershooting forecasts of a 0.5 percent rise, while the year-on-year rate of growth slowed more than anticipated.
Sterling bulls might have received some comfort, however, from the rise in the sales deflator - a measure of price pressures in shopping centres - to its highest level since February 1999.
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