Sterling slips on poor retail sales

UK retail sales volumes fell to their lowest ebb since February 2021 in October. The 2.7% drop in the headline annual rate and the 2.4% fall in the core calculation were much worse than the markets had forecast. Surprisingly, the pound only slipped a little but it has had a poor week anyway. Having spiked above $1.25 on Tuesday, the GBP/USD rate is down to $1.2385 this morning and the GBP/EUR rate is nearly ¾ of a cent lower in the same period. This is down to €1.1435 this morning. We don’t have anything substantial from the UK today but there is EU and US data to contend with.

Euro weakness a risk if inflation data falls as predicted

The EUR/USD rate has trickled lower this week and we may see further euro weakness when the eurozone consumer price inflation data is published at 10 am GMT. The markets are predicting a fall in headline inflation to just 2.9% in the year to October. That is scarily close to the European Central Bank’s target of 2.0%. If the data matches expectations, it would be hard for the ECB to ignore the calls for more dovish monetary policy. To maintain high interest rates for longer would risk crushing the fragile eurozone economy.

US industrial production drops 0.6%, dollar slips

The markets weren’t expecting a 0.6% drop in US industrial production in October. The US dollar ought to have weakened on that news but it has maintained a holding pattern. The GBP/USD rate is still hovering around $1.24 and the EUR/USD rate is down a tad to $1.0850. We will see US building permit data later today. The Fed sees that as an important leading indicator. So the data will be watched closely.