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The pound dipped below $1.22 against the dollar this morning, slipping after softer than expected readings on UK house prices and retail sales last month and ahead of another House of Lords debate on the triggering of Article 50 today.
Sterling is down 0.25 per cent against the dollar this morning at $1.2199 – the lowest since January 17. The exchange rate has declined for seven of the last eight trading days as latest survey data from the UK economy suggests activity has slowed at the start of the year.
The British government is expected to invoke Article 50 of the EU’s Lisbon Treaty later this month, starting the gun on two-year exit talks with the bloc. A draft law on the Brexit process is making its way through parliament and will be debated by the House of Lords later today.
Peers will have a final debate on amending the bill this afternoon, discussing whether or not to demand a “meaningful vote” on the final terms of the Brexit deal. Last week, the Lords voted in favour of amending the Article 50 bill to to demand EU citizens be given full citizen rights three months after exit talks begin.
In order to pass, the bill will have to go back to the House of Commons.
Sterling is also softening ahead of Philip Hammond’s first budget due tomorrow, which comes amid a backdrop of a slowing UK economy. Survey data from the private sector and on consumer spending has moderated in 2017, as higher inflation begins to pinch households and raise business import costs.
Earlier today, retail sales figures from the British Retail Consortium were lower than expected in February, with non-food retail sales dipping for the first time since 2011. Meanwhile, the price of goods sold in the country’s supermarkets has grown at the fastest pace in over two years, according to Kantar.
Kit Juckes at Société Générale said the start of the Brexit process, coupled with a slowing economy means “no good news for sterling”.
A slowing economy will help keep Bank of England policymakers away from a rate rise while the US Federal Reserve is poised to raise rates later this month. This differential in interest rates should keep a lid on the pound’s strength against the dollar, said analysts at ING.
“With UK rates held in check, the 2 year US-UK sovereign spread is now a staggering 120 basis points and serving to keep Cable under pressure,” said Chris Turner at the Dutch bank.
Chart via Bloomberg