Pound Sterling rebounds swiftly as upbeat Retail Sales offset inflation softening

• Pound Sterling faces pressure around 1.29 and drops swiftly despite UK Retail Sales data for June remaining stronger than expectations.
• United Kingdom’s consumer spending in June remained resilient despite the burden of high inflation.
• Monthly Retail Sales for June expanded by 0.7% while investors were expecting a mild expansion of 0.2%.

The Pound Sterling (GBP) delivers a solid recovery near 1.2820 as the United Kingdom Retail Sales data turned out more resilient than expected. The GBP/USD pair rebounds swiftly as consumer spending growth expanded strongly in June. Monthly Retail Sales in June expanded by 0.7% vs. expectations of 0.2%. Annual consumer spending data contracted by 1.0% against the consensus of -1.5%.

The United Kingdom’s consumer spending remained resilient in June despite the burden of higher inflation and interest rates by the Bank of England (BoE). Upbeat retail demand has offset the optimism inspired by soft inflation data for June as higher consumer spending could allow firms to raise the prices of goods and services at factory gates again. Also, consumer spending resilience might elevate hopes of a consecutive 50-basis-point (bp) interest rate hike by the UK central bank.

Daily Digest Market Movers: Pound Sterling finds strength as risk-off mood eases

•  Pound Sterling recovers quickly as the United Kingdom Retail Sales data for June was stronger than anticipated.
• Monthly Retail Sales data expanded by 0.7% in June vs. 0.1% in May and the consensus of 0.2%. Annual Retail Sales data contracted by 1.0% against the expectations of -1.5% and former release of -2.1%.
• Retail Sales excluding fuel posted growth of 0.8% against a stagnant performance recorded for May and the estimates of 0.1% on a monthly basis. Annualized economic data contracted by 0.9% vs. the consensus of -1.6% and the former release of -1.9%.
• Resilience in consumer spending could offset the impact of June’s soft Consumer Price Index (CPI) data and reinforce the odds of a 50 bps rate hike from the Bank of England.
• Investors were mixed about the pace at which interest rates will be hiked by the Bank of England on August 3.
• Market participants were anticipating that BoE Governor Andrew Bailey would raise interest rates consecutively by 50 basis points (bps) but as June’s inflation cools down significantly a league of investors are tilting toward a 25 bps rate hike.
• The investing community expects that interest rates by the BoE would peak around 6.5%.
• BoE Deputy Governor Dave Ramsden acknowledged that the inflation has begun to fall significantly in the UK but noted that it was still "much too high," per Reuters.
• Market participants seem confident that UK inflation has started cooling down as aggressive policy tightening by the BoE and a decline in the Producer Price Index (PPI) are collectively attacking price pressures.
• According to a survey from Lloyds Bank, producers have cut prices for the first time in more than three years and are passing on the benefit of the decline in cost pressures to end consumers.
• Next week, investors will shift their focus onto the S&P Manufacturing & Services PMI for June, which will be published on Monday at 08:30 GMT.
• The overall market mood is quite cautious as the second-quarter earnings season has kicked off.
• Meanwhile, the US Dollar Index (DXY) is gathering strength to capture crucial resistance of 101.00.
• The US Dollar Index has come back into action as consumer spending has maintained growth and core inflation could a while in returning to 2%.
• Investors are keenly awaiting the interest rate decision by the Federal Reserve (Fed), which will be announced on July 26.
• As per the CME FedWatch tool, interest rates would be hiked by 25 bps to 5.25-5.50%. Investors are hoping that this would be the last interest rate hike this year.

Technical Analysis: Pound Sterling picks strength above 1.2800

Pound Sterling has rebounded sharply from 1.2820 as the UK Retail Sales expand significantly higher than expectations. and the US Dollar Index has faced resistance above 101.00 The Cable found support at the 20-day Exponential Moving Average (EMA) at 1.2860, which indicates that the short-term bullish bias is still intact. Momentum oscillators indicate that the upside momentum has faded but remains mostly still intact.