FX round-up: MPC may have to tolerate inflation overshoot, BoE's Weale says

The pound retreated at the end of the week in the face of much stronger than expected numbers on US retail sales and consumer confidence, against the backdrop of a warning from the IMF regarding the impact Brexit might have on Britain's economy and sterling assets.

Brexit might set off volatility in financial markets, resulting in "sharp" drops in home and equity prices, impacting economic growth and eroding London's standing as a financial centre, the Washington-based lender said at the conclusion of its so-called Article IV consultation.

Cable dropped 0.60% to 1.4365, with the pound losing 0.94% to 156.044 versus the Japanese yen.

Euro/sterling was up a fraction, rising 0.02% to 0.7874.

In a speech delivered at Liverpool University on Friday, Monetary Policy Committee member Martin Weale said that if the Bank of England had overestimated the extent to which uncertainty surrounding Brexit was undermining the pound then the MPC might have to trade-off curbing an overshoot in the inflation target and supporting growth, Market News International reported.

According to Weale, the BoE had estimated Brexit uncertainty would see the economy slow to a 0.3% quarter-on-quarter clip over the three months to the end of June, but the preliminary estimate for second quarter growth "may well be lower", he said.

Acting as a backdrop, the US dollar spot index gained 0.49% to 94.61 on Friday.

Goldman cuts euro/dollar forecasts

Among the major currency pairs, euro/dollar also dropped 0.60% to 1.1309, while dollar/yen lost 0.36% to 108.63.

Weakness in the former came despite a strong 0.7% quarter-on-quarter reading on German GDP growth for the first three months of the year.

Over that same stretch, euro area GDP expanded at a 0.5% quarter-on-quarter pace, Eurostat said, down from a preliminary estimate of 0.6%.

"Nevertheless, there are important positives for Eurozone economic activity and we believe it should be able to sustain growth around 0.4% quarter-on-quarter. Consequently we expect Eurozone GDP growth to come in at 1.7% in 2016, which would be up slightly from 1.6% in 2015 and the best performance since 2010," Dr.Howard Archer, chief UK+European economist at IHS said in a research note sent to clients.

To take note of, on Friday Goldman Sachs joined the likes of Deutsche Bank in revising their 12-month euro/dollar forecasts.

The top-rated broker now projected the euro would be trading at $1.05 in twelve month's time, up from a prior forecast of 95 cents.

Commodity currencies weaker

The greenback was also higher against the main commodity currencies, rising 0.73% versus the Canadian Loonie on a day in which most commodity prices staged a retreat, oil included, and despite reports the country's oil production was to begin gradually recovering.

Australia's Aussie retreated 0.74% to end the day at 0.7271.

Early on Friday morning, the People's Bank of China released data showing a large drop in so-called total social financing in April.

However, the PBoC's figures did not account for a programme that allows local governments to swap more expensive debt for cheaper municipal bonds.

Taking that into account then the TSF measures was at a 26-month high, Capital Economics said.