Sterling was on track for its biggest weekly loss in a month on Friday, trading with touching distance of a 6-1/2 month low against the dollar it hit earlier in the day after weak UK retail sales figures. Investors trimmed bets against the pound and squared positions before the weekend, and strategists said they expect the currency will remain weak, with poor data reviving worries that the economy could slide into recession.
The retail sales data added to gloom about the outlook for the pound, which has been under pressure since Wednesday when the Bank of England quarterly inflation report forecast higher inflation and weak growth. Sterling was up 0.2 percent at $1.5525, but was trading not far from $1.5462 plumbed after the retail sales data, which was its lowest since July 26.
"The pound is still underperforming and that is one of the major trends this year," said Lee Hardman, currency economist at Bank of Tokyo Mitsubishi. "Retail sales reinforced concerns about the state of the economy and that led to pound selling this morning. Since then the pound has basically been stabilising at these lower levels, it hasn't really changed its trend."
UK retail sales for January fell 0.6 percent from the previous month, wrongfooting many investors who had positioned for a positive reading. The consensus forecast was for a rise of 0.4 percent. The pound has now dropped more than 4.5 percent against the dollar so far this year. One London-based FX trader said he was expecting sterling to fall through $1.50 in coming months, a level last seen in July 2010.
UBS recommended investors to buy a six-month sterling put/ dollar call option, or a bet that the pound would drop - with a strike price of $1.4800. The bank made the recommendation on the back of growing political risks linked to whether Britain will stay within the European Union or not. A dour growth outlook and the likelihood of finance minister George Osborne missing his debt reduction targets, leading to a potential credit downgrade were also contributing factors.
For a change, sterling outperformed the euro, given worries about euro zone growth were returning. The euro was down 0.3 percent against sterling at 86.00 pence, well below a 15-month high of 87.17 pence hit on February 1. Concerns about the economy meant the pound struggled against a number of currencies. It hovered near Thursday's 21-year low of 9.7418 against the Swedish crown and hit at least a 30-year low against the New Zealand dollar of NZ$1.8246.
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