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The Pound fell to 1.4538 after U.K. retail figures showed a 1.9% drop in consumption in February, ending three consecutive months of gains. The sharp drop in the monthly reading led an annual gain of 2.5%, which was the lowest in 13 years.

Talking Points
• Japanese Yen: Consolidating Above 98.00
• Pound: Retail Sales Lowest Since 1995
• Euro: German and French Consumer Confidence Sink
• US Dollar: 4Q GDP On Tap

Pound Weakens On Lowest Retail Sales Since 1995, Geithner To Look To Tighten Reins on Wall St.

The Pound fell to 1.4538 after U.K. retail figures showed a 1.9% drop in consumption in February, ending three consecutive months of gains. The sharp drop in the monthly reading led an annual gain of 2.5%, which was the lowest in 13 years. A look at the breakdown reveals that apparel sales fell 3.7% followed by a 1.9% drop in household goods, which is not surprising since these were the same sectors that saw an increase in prices. Sterling had reached as high as 1.4640 during overnight trading and although it has weakened on the retail figures volatility remains subdued which has been the theme throughout the currency markets.

The BoE reiterated its forecast for inflation to undershoot their 2% target and with domestic demand on the decline retailers will be forced to resume slashing prices to inspire buyers. The dour consumption data supports the central bank's dour outlook for growth and justifies their recent quantitative easing efforts. The U.K. economy continues to deteriorate and with the labor market feeling the effects of the tight credit markets and declining global demand we may see further efforts from the central bank which could limit upside potential for the pound.

The Euro spent most of the overnight session trading in a tight range between 1.3540-1.3610 due to a lack of fundamental data and quiet equity markets. Consumer sentiment in Germany, France and Italy declined in March as the deepening recession and tight credit markets have dimmed the outlook for future growth. French and Italians confidence fell to record low levels as the relative lack of action from the ECB has fueled concerns that the Euro-zone may find itself in a more prolonged downturn than other developed nation. Although, the central bank has hinted at further rate cuts and the possibility of quantitative easing, their recent track record has kept market skeptical that they will take measures in the near-term.

The markets today will be watching U.S. Treasury Secretary Tim Gethner's testimony to the House financial panel as he is expected to call for large hedge funds, private- equity firms and derivatives markets to be brought under federal supervision for the first time. We could see a negative reaction from equity markets as traders aren't typically receptive to government regulation which could threaten the recent rally in stocks. The increase in risk aversion could add to dollar support as money flows into U.S. Treasuries. However, the tighter reins could spark an exodus from U.S. assets into other markets which could have a weighing impact on the dollar. Additionally, the final GDP figures for the 4Q are expected t to be revised lower to -6.6% from -6.2%, which would be the largest contraction since 1980. The dour growth numbers could dim the outlook for future profits and add to risk aversion.

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To discuss this report contact John Rivera Currency Analyst: jrivera@fxcm.com