During European trading hours on Friday, the British pound (GBP) was fairly stable, hovering around 1.3315 against the US dollar (USD). The GBP/USD pair gained strength as investors waited for critical trade negotiations between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, set to start on Friday as the ASEAN summit unfolds in Malaysia.
Negotiators from both countries will tackle trade tensions sparked by China’s recent export restrictions on rare earth minerals. In retaliation, the U.S. has hinted at restricting software-enabled exports that include everything from laptops to jet engines.
Investors are also keenly awaiting the delayed September U.S. Consumer Price Index (CPI) data, initially held up by the government shutdown, along with the preliminary S&P Global PMI numbers for October, expected to be released later in the North American session.
The consensus among analysts suggests that the U.S. headline inflation rate will tick up to 3.1% annually, higher than the earlier estimate of 2.9%. Core CPI, excluding volatile food and energy items, is also projected to rise to 3.1%. Month-over-month, the headline and core CPI are anticipated to increase by 0.4% and 0.3%, respectively.
Policymakers seem increasingly worried about risks in the labor market. Although rising price pressures may not shift dovish expectations ahead of next week’s Federal Reserve monetary policy meeting, stronger figures could definitely bolster those expectations.
In addition, the U.S. S&P Global PMI is expected to show slower growth, particularly in the services sector. The October services PMI is projected to come in at 53.5, a decline from 54.2 in the previous report.
Pound rebounds on strong UK retail sales and preliminary PMI data
- On Friday, Sterling is gaining against major currencies, boosted by surprising retail sales data from September and preliminary S&P World PMI results for October.
- Private sector activity expanded more than anticipated, indicating a composite PMI for October of 51.1, which tops the expected 50.6 and the previous 50.1 reading.
- Growth in the services sector and an uptick in manufacturing PMI contributed to this upbeat PMI. The services PMI was 51.1, slightly above the expected 51.0, while manufacturing PMI improved to 49.6 from the expected 46.6, indicating a slower contraction as values below 50 signal reduced activity.
- Earlier data from the Office for National Statistics (ONS) showed retail sales unexpectedly increased by 0.5% month-over-month, a bit slower than August’s upwardly revised 0.6%, but far better than the anticipated 0.2% decline.
- On an annual basis, the Personal Consumption Index saw solid growth at 1.5%, outpacing market expectations of 0.6% and the previous 0.7% prediction.
- These positive retail sales reports and signs of improving PMI may ease concerns for Bank of England (BoE) officials worried about the economic outlook. During a recent conference in Ireland, BoE policy chief Swati Dhingra highlighted potential downward pressure on inflation and growth from U.S. tariffs, stating, “Tariffs mean lower overall growth and will put some downward pressure on prices in the medium term.”
Technical analysis: GBP trades below the 20-day EMA
This Friday, the British pound fell to about 1.3315 against the U.S. dollar. The GBP/USD pair’s short-term trend appears bearish, remaining below the 20-day exponential moving average (EMA) around 1.3395.
The 14-day Relative Strength Index (RSI) is around 40.00. If the RSI dips below this mark, it could signal new bearish momentum.
On the lower end, the August 1st low of 1.3140 will act as a crucial support level. Conversely, the psychological barrier of 1.3500 is significant on the upside.
