Market Update

Sterling edged lower against both the U.S. dollar and the euro as fresh data showed retail sales fell by a record 18% as the coronavirus crisis hammered the economy and while U.S.- 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 100% of gross domestic product, the highest since 1963.

The data added to an overall lack of good news for the pound, 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.

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 U.S.-China tensions boosted demand for safe-haven currencies.

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.

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