- UK retail sales for July disappoint with a -1.2% m/m decline, beating the forecast decline of -0.5%.
- Strong UK GDP readings and rising wages keep rate hike expectations alive from the Bank of England, which sees a 6% top bank rate.
- Focus is on upcoming PMIs, housing data and Fed Chairman Jerome Powell’s speech for the future path of monetary policy.
GBP/USD pulls back from daily highs and losses for a second day in the week, but remains poised to end the week higher. UK retail sales were softer, but most data supports the Bank of England’s (BoE) case for a rate hike at its next meeting. GBP/USD is trading at 1.2740 after reaching a daily high of 1.2766.
Despite falling retail sales, strong UK GDP and wage growth fueling expectations of a BoE rate hike, setting the stage for GBP/USD appreciation
Losses in global stocks reflect sour sentiment weighing on GBP/USD, while safety-seeking flows bolstered the US dollar (USD). The Office for National Statistics (ONS) revealed that July retail sales fell -1.2% MoM, below estimates for a -0.5% drop, while the annual bias plunged -3.2%, beating estimates. of -2.1%.
However, strong UK GDP numbers and steadily rising wages keep expectations of further tightening from the Bank of England high, as money market traders are pricing in a 6% high on the bank rate. Therefore, GBP/USD would appreciate in the short term, as the interest rate differential over the FFR in the US, currently at 5.25%-5.50%, favors the British Pound (GBP).
In the US, the latest round of economic data keeps the dollar supported and Treasury yields at elevated levels. Monetary policy is expected to remain at restrictive levels, as Federal Reserve (Fed) officials noted, as revealed in the July monetary policy minutes.
The Dollar Index (DXY), a gauge of the value of the USD against a basket of six currencies, stands at 103.680, at a two-month high, while US Treasury yields trim some of their losses, with the 10-year US Treasury yield yielded 4,239%, four basis points less.
What must be considered?
The UK economic calendar will include the preliminary reading of the August PMIs. In the US, PMI indices, housing data, Federal Reserve speeches and Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium will be the main topics for clues on the future course of monetary policy.
GBP/USD Price Analysis: Technical Perspective
The GBP/USD daily chart shows the pair with a neutral bias, although it seems to have bottomed around 1.2620. Since then GBP/USD has rebounded to 1.2700 and remained four days above this latest level. Although the pair approached 1.2800, it was capped by the 50-day moving average (DMA) at 1.2786. However, once broken, the next stop would be 1.2800, followed by Aug 10 at 1.2819 and the next intermediate resistance at 1.2850. Conversely, if GBP/USD falls below 1.2700, the decline would deepen to 1.2660.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
