Investing.com -- Sterling tumbled in early trade in Europe on Tuesday amid increasing signs that the economy has started to contract, and fears that the situation will only get worse in the short term due to the ongoing Brexit drama.
Overnight, the British Retail Consortium reported that like-for-like retail sales fell 1.6% from a year earlier in June. It added that average sales over the last 12 months had fallen 0.1% - the worst performance since 2012.
U.K. consumer spending was “markedly softer” in second quarter, even after allowing for the distortion’s of last year’s soccer World Cup, said EY ITEM club chief economist Howard Archer via Twitter. He added that the figures “fuel our belief (that) GDP likely contracted 0.2% quarter-on-quarter.”
The numbers follow a string of exceptionally weak purchasing managers index reports last week, which reflected both a general drop in investment due to Brexit-related uncertainties and the unwinding of emergency stockbuilding after the postponement of the March 29 Brexit deadline, and the fact that many car factories moved up their annual maintenance period to avoid over-producing in what was expected to be the immediate aftermath of Brexit.
At 3:45 AM ET (0745 GMT), the pound was at a six-month low of $1.2485, only a fraction above the two-year low that it hit at the end of 2018. The pound was also down 0.3% against the euro at €1.1135.
The drawn-out election of the next Conservative Party leader (who will automatically become prime minister) is also weighing on the pound, with both candidates talking up their willingness to leave the EU without a transitional deal in October in order to win over a party membership that is more devoted to Brexit than the country at large. A final televised debate between the two candidates, Boris Johnson and Jeremy Hunt, is due this evening.
Against other currencies, the dollar continued to grind slowly higher in the wake of the jobs report, although traders were reluctant to make big new bets ahead of Federal Reserve Chairman Jerome Powell’s testimony to Congress on Wednesday and Thursday.
Powell is also due to deliver the opening remarks at a Fed event on bank stress tests at 8:45 AM ET, which may give advance clues about his views on the implications of last week's strong jobs report for the future path of interest rates.
Futures on the dollar index, which tracks the greenback against a basket of developed-market currencies, hit their highest in nearly three weeks thanks largely to the weakness in sterling. At 3:45 ET, they were at 97.082, up 0.1% from late Monday.