While markets had anticipated some slowdown in UK retail sales the data fell significantly short of forecasts, with sales found to have contracted -1.8% on the month in March.
This put renewed downside pressure on the Pound, given that high levels of consumer spending have helped to keep the economy in robust health in recent years.
With inflation expected to rise further over the course of the year, particularly as the Bank of England (BoE) is likely to maintain its neutral policy outlook, this suggests that the economy could slow further.
Even so, the Pound South African Rand exchange rate found some support ahead of the weekend thanks to comments from BoE policymaker Michael Saunders.
As well as noting that he expects inflation to rise further than the BoE’s current forecasts, Saunders stated:
‘I do not believe the MPC is necessarily obliged to delay any policy moves until we have certainty over the exact shape of Brexit and its long-run effects on the economy.’
Although this moderately hawkish comment is at odds with the views of other policymakers this nevertheless encouraged the Pound to recover some of its losses, suggesting that interest rates may not remain at their current historic low for quite so long.
The appeal of the Pound could deteriorate in the coming weeks if uncertainty mounts over the outcome of the snap general election.
Markets may also be unsettled if Theresa May continues to adopt a hard line of rhetoric on the issue of Brexit, running counter to investor bets that a larger Conservative majority could lead to a softer divorce from the EU.
Any further signs of softness within the domestic economy could exacerbate the bearish bias of Sterling, particularly if the latest public sector net borrowing figure points towards a rising level of government debt.
Following March’s better-than-expected South African inflation data the mood towards the Rand has remained relatively positive.
With global geopolitical tensions easing somewhat the appeal of the higher-yielding Rand strengthened, even though doubts still remain over the domestic political situation.
As weaker US data and comments from the Trump administration encouraged lower odds of a June Federal Reserve interest rate hike the Rand also benefitted.
Even so, if the South African producer price index is found to have risen sharply on the year in line with forecasts this could give the GBP ZAR exchange rate a fresh boost.
Higher producer prices could signal that the recent decrease in inflation is unlikely to last for long, particularly if the M3 money supply report also suggests persistently high inflationary pressures within the economy.
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