Sterling and the US dollar staged a battle royale for the dubious honour of weakest currency on Tuesday.
Sterling was first to take a dive as data revealed a slowdown in both the UK's retail and housing sectors.
The CBI Distributive Trades survey showed a net balance of just 2 per cent of retailers reporting rising sales in the year to August, compared to 24 per cent in July and 43 per cent in June. Furthermore, the Bank of England said mortgage approvals fell to 97,000 in July, from 112,000 in June.
Some argued that the retail numbers fell victim to poor weather, but others were less forgiving. “This adds weight to our view that the peak in UK rates is near, with just one more 25-basis point rise possible,” said James Knightley, economist at ING Financial Markets.
“[The data] suggest that higher interest rates are now starting to hit the household sector hard,” said Vicky Redwood, UK economist at Capital Economics, who saw scope for UK rates to start falling next year.
As a result, the pound slumped 0.7 per cent against both the euro and the Swiss franc to $0.6755 and SFr2.2802 respectively, but still managed to strengthen 0.4 per cent to $1.8010 against the diving dollar.
The greenback was also undermined by weak data, with the Chicago Purchasing Managers' Index falling more sharply than expected to 57.3 in August, from July's 64.7. The index still indicates manufacturing expansion, and the employment component crept higher, but any upside was eroded by a worse-than-expected fall in consumer confidence, as measured by the Conference Board.
The dollar slid 1 per cent against the euro to $1.2172 and 0.7 per cent versus the yen to Y109.24.
The euro strengthened almost by default across the board, despite eurozone inflation remaining constant at 2.3 per cent in the year to August, dashing expectations for a slight uptick.
But the yen fell 0.3 per cent to Y133.01 against the single curency amid mounting concern as to the strength of the Japanese economic recovery as industrial production numbers disappointed, building on weak household spending and export data last week and helping to send the Nikkei 225 0.9 per cent lower.
Elsewhere the Norwegian krone slumped 0.5 per cent to a four-week low of NKr8.4258 to the euro, before recovering somewhat to NKr8.3840, as the Norges Bank said it would quadruple its foreign exchange purchases on behalf of the state oil fund to NKr630m per day in September, from NKr150m in August, due to higher oil prices and under-allocations earlier in the year.
Soft credit growth data added to the downward pressure. “This suggests that economic conditions in Norway are still quite sluggish. Inflation is barely alive,” said Paul Mackel, currency strategist at ABN Amro, who saw room for the Nokkie to slide to NKr8.50 to the euro.
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