Pound Sterling hits hard due to sharp contraction in UK Retail Sales
|- The Pound Sterling further corrects against the US Dollar after the release of weaker-than-expected UK Retail Sales data for June.
- Doubts over the BoE to begin reducing interest rates in August remain afloat.
- The uncertainty over the US Presidential elections improves the safe-haven appeal of the US Dollar.
The Pound Sterling (GBP) extends its correction against the majority of its peers in Friday’s London session. The British currency slides further as the United Kingdom (UK) Office for National Statistics (ONS) has reported weaker-than-expected Retail Sales data for June.
The report showed that monthly Retail Sales contracted at a faster pace of 1.2%. Economists estimated a decline of 0.4% against 2.9% growth in May. Annually, receipts at retail stores dipped by 0.2%, which were expected to have grown at a similar pace. Every retailer saw a sharp decline in sales receipts except those who offers automotive fuel.
Retail Sales data is a key measure of consumer spending, and a sharp decline in the same suggests that households struggle to bear the burden of higher interest rates by the Bank of England (BoE). However, individuals may not find any relief from higher interest obligations amid uncertainty over BoE rate cuts in August.
BoE officials hesitate to favor a move towards policy normalization due to the sticky US core Consumer Price Index (CPI) amid stubborn inflation in the service sector.
Meanwhile, the expected deceleration in Average Earnings data for the three months ending in May, a key measure of wage growth that prompts service inflation, fails to lift expectations for BoE rate cuts in August as the current pace is still higher than what it is needed to be consistent for taming price pressures.
Daily digest market movers: Pound Sterling dives while US Dollar bounces back
- The Pound Sterling weakens to near 1.2930 against the US Dollar (USD) as the latter rebounds strongly after printing a fresh almost four-month low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back from 103.65 and extends recovery to nearly 104.30.
- The safe-haven appeal for the US Dollar improves amid growing speculation that United States (US) President Joe Biden could drop his re-election bid. This has prompted upside risks to political uncertainty.
- However, the recovery move in the US Dollar is less likely to last long as traders see the Federal Reserve (Fed) reducing interest rates in September as a done deal. Investors expect the Fed to cut borrowing costs twice this year instead of once, as signaled by policymakers in the latest dot plot.
- In Friday’s session, New York Fed Bank President John Williams and Atlanta Fed Bank President Raphael Bostic are lined up for speeches. Investors will focus on cues about when the Fed will start cutting interest rates.
- Meanwhile, Fed officials' confidence that inflation has returned to the path of 2% has improved due to slower-than-expected growth in the US inflation and easing labor market conditions. Recent CPI readings from June showed that annual headline and core inflation decelerated faster than expected, and monthly headline inflation declined for the first time in more than four years.
Pound Sterling Price Today:
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the New Zealand Dollar.
| GBP | EUR | USD | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| GBP | 0.00% | -0.15% | 0.02% | -0.10% | 0.03% | 0.15% | -0.02% | |
| EUR | -0.01% | -0.14% | -0.21% | -0.10% | 0.02% | 0.14% | -0.02% | |
| USD | 0.15% | 0.14% | -0.05% | 0.08% | 0.17% | 0.28% | 0.13% | |
| JPY | -0.02% | 0.21% | 0.05% | 0.12% | 0.24% | 0.35% | 0.19% | |
| CAD | 0.10% | 0.10% | -0.08% | -0.12% | 0.10% | 0.22% | 0.05% | |
| AUD | -0.03% | -0.02% | -0.17% | -0.24% | -0.10% | 0.11% | -0.05% | |
| NZD | -0.15% | -0.14% | -0.28% | -0.35% | -0.22% | -0.11% | -0.17% | |
| CHF | 0.02% | 0.02% | -0.13% | -0.19% | -0.05% | 0.05% | 0.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling drops after Bearish Belt Hold formation
The Pound Sterling corrects sharply to near 1.2920 against the US Dollar. The GBP/USD pair weakens as the upside stalls after printing a fresh annual high at 1.3044 on Wednesday. The Cable has formed a Bearish Belt Hold candlestick pattern on a daily timeframe, a move that generally comes after a sharp rally. However, this alone is incapable of confirming a bearish reversal.
The upward-sloping 20-day Exponential Moving Average (EMA) near 1.2850 suggests that the uptrend is intact. The 14-day Relative Strength Index (RSI) declines after turning slightly overbought and is expected to find a cushion near 60.00.
On the upside, a two-year high near 1.3140 will be a key resistance zone for the Cable. On the other hand, the March 8 high near 1.2900 will be a key support for the Pound Sterling bulls.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.