Sterling fell against the dollar and euro on Thursday after data showed UK retail sales were much weaker than expected in February. The pound extended losses as US stocks pared gains and the dollar broadly rose after yields on 1-month Treasury bills briefly slipped into negative territory as investors scrambled to raise cash prior to the end of the quarter. The fall in yields indicates a pick-up in risk aversion.
British retail sales plunged more than expected as snowy weather and dismal economic conditions kept consumers away from the shops. The monthly fall of 1.9 percent took the annual growth rate to 0.4 percent, its weakest since 1995, the Office for National Statistics said.
"We saw a weakening on the back of the retail sales and the market is focused on the macro-economic deterioration and the fact the Bank of England is doing everything it can to support the economy," said Phyllis Papadavid, a currency strategist at Societe Generale.
At 1509 GMT, the pound was 0.3 percent lower at $1.4508, having earlier hit a session high of $1.4637, while the euro was 0.1 percent higher at 93.41 pence. Analysts said the sharp sell-off in sterling after Britain suffered its first failed gilt auction since 2002 the previous session had been overdone.
Indeed, a sale of 1.1 billion pounds of index-linked gilts due 2022 on Thursday was 2.72 times covered, bringing some relief to the market and to finance minister Alistair Darling who dismissed the previous days result as a one-off. Darling also said that spending was needed to fight unemployment and that BoE Governor Mervyn King agreed everything possible should be done to support growth.
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