Sterling slipped against the US dollar this afternoon in a knee-jerk reaction to the Swiss National Bank's decision to peg the EUR/CHF exchange rate level at 1.20.
Further weighing on the pound was UK service sector data, which posted its biggest drop in a decade on Monday. In addition, UK retail sales data added to further worries that the British economy is struggling. Retail sales fell 0.6% at an annual rate in August as cash-strapped consumers bought fewer non-essential items such as homeware or furniture. The food sector proved more resilient, but non-food retail showed a marked decrease in sales year-on-year. Poor consumer confidence, high inflation and the ongoing squeeze on personal finances remain the biggest threats to the retail sector.
Weak data combined with worries over global growth has also prompted speculation that the BoE may need to restart quantitative easing in an effort to stimulate growth in the UK. Also weighing on sterling is a downturn in risk sentiment, which stemmed from ongoing worries over an escalation in the eurozone's debt crisis. Later this afternoon, US ISM non-manufacturing data is due at 3pm (London time), followed by a speech at 6.10pm (London time) by Minneapolis Fed president Narayana Kocherlakota.