The British Pound declined against both the Euro and the Dollar following a significant drop in UK retail sales for April. However, markets appear to be looking past these figures due to the impact of adverse weather conditions.
According to the ONS, retail sales dropped by 2.3% month-on-month in April, far below the expected -0.4%. Annually, sales fell by 2.7%, missing the forecasted -0.2%.
Upon the release of this data, the Pound to Euro exchange rate initially fell but quickly rebounded to around 1.1737. Similarly, the Pound to Dollar exchange rate dropped to 1.2672 before recovering to 1.2690.
The brief dip in the Pound indicates that investors are disregarding the weather-affected figures, anticipating a rebound in May. Additionally, retail sales are expected to recover in the coming months, supported by a strong job market and declining inflation.
Although the monetary value of retail sales has steadily increased in recent months, the volume of goods sold continues to decline. This trend is due to inflation, which is driving up costs and reducing the quantity of purchases.
With inflation expected to fall back near the Bank of England's 2.0% target in the coming months, the value of sales could stabilise. Meanwhile, increasing real incomes may lead to a rise in sales volume.
The Pound is likely to withstand any post-retail sales volatility due to reduced expectations for a Bank of England interest rate hike following Wednesday's inflation report.
