The Pound retained a fairly sturdy exchange rate against most of its peers yesterday as decent public sector borrowing figures equalled out a surprise drop in retail sales volumes.

The Office for National Statistics (ONS) reported that the British government had to borrow just £6.7 billion during March to balance the books, which, miraculously, helped Chancellor George Osborne to meet his revised target of bringing public sector borrowing down to £90 billion or below in the financial year 2014/15. The result will have pleased members of David Cameron’s Conservative government, especially considering that just half a year ago the prospect of the British deficit falling to £87.3 billion looked fairly slim.

However, the UK economy was not viewed exclusively with rose spectacles; markets were unimpressed with a shock -0.5% dip in March retail sales, which undershot expectations of a +0.4% gain. It was reported that further reductions at the petrol pumps contributed to the soft score.

Euro

Sterling slid by around a cent against the single currency yesterday as traders of GBP/EUR focussed on the disappointing UK retail sales report rather than the upbeat British government borrowing figures.

Across the Channel in Europe, data showed that economic sentiment in the region cooled slightly at the start of April, as concerns began to mount regarding Greece’s ability to agree a deal with its lenders to obtain much-needed financial support. The overall Eurozone private sector PMI slowed from 54.0 to 53.5, whilst the manufacturing industry saw output slip from 52.2 to 51.9. The deceleration was most prominent in the currency bloc’s two largest economies, Germany and France, whereas private sector activity in the periphery improved at its fastest rate since the credit crunch.

However, market sentiment towards the Euro was buoyed by a newsflash from Berlin suggesting that ‘at the highest level the Germans want to keep Greece in the Euro area’.

US Dollar

The Pound continued its good run of form against the US Dollar yesterday with a mild appreciation during the afternoon in response to a worse-than-expected US manufacturing PMI result.

The American manufacturing sector suffered a surprise slowdown from 55.7 to 54.2 in April, it was reported yesterday, which played into the hands of those who argue that weaker domestic data at the start of this year could persuade the Federal Reserve to postpone its plans to raise interest rates in June, July or September. Demand for the ‘Greenback’ was also negatively influenced by a strikingly bad -11.4% decline in new home sales and this helped ‘Cable’ remain close to a monthly high.

Canadian Dollar

The Pound to Canadian Dollar exchange rate retreated by over -130 pips yesterday in response to an uptick in demand for Canadian stocks due to a rise in the value of Canada’s most lucrative export: crude oil. GBP/CAD is now just a cent higher than the three-month low it struck last week.

Australian Dollar

Sterling rallied by around 100 pips against the Australian Dollar yesterday as investors sold the ‘Aussie’ on the back of a dismal Chinese PMI result, but GBP/AUD gave up its gains later on in the day due to the unexpected decline in UK retail spending.

China’s latest manufacturing PMI showed that factory output slowed to a yearly low of 49.2 during April as employment within the sector plummeted for the 18th month in a row. And this initially impacted demand for the Antipodean currency because Australia relies heavily on China to support its mining export sector.

New Zealand Dollar

The downbeat Chinese manufacturing PMI and a dovish statement from Reserve Bank of New Zealand Assistant Governor John McDermott combined to compromise demand for the New Zealand Dollar yesterday. And subsequently Sterling managed to mount a near-200 pip rally against the ‘Kiwi’. Markets sold the New Zealand Dollar following McDermott’s remark that ‘at present, the bank is not considering any increase in interest rates’.