Pound Sterling Surges with Positive Retail Sales Data
- The pound’s trading outlook has improved thanks to better-than-expected UK retail sales figures for July.
- UK retail sales rose by 0.6% in July, surpassing the anticipated 0.2% increase.
- Investors are now looking ahead to the important US non-farm payroll data set to be released for August.
The pound sterling (GBP) is showing a mixed performance following the recent release of UK retail sales data for July. According to the Office for National Statistics (ONS), consumer spending, as measured by retail sales, grew unexpectedly at a rate of 0.6%, which is notably better than the 0.2% economists were predicting. In June, retail sales had a slight revision, showing an increase of 0.3% instead of the previously reported 0.9%.
Year-on-year, retail sales increased by 1.1%, missing the 1.3% projection. However, this growth rate was adjusted from an earlier figure of 1.7%, which is an improvement from June’s 0.9% increase.
The uptick in UK retail sales suggests strong consumer demand, which could push the Bank of England (BOE) to continue a tight monetary policy in light of ongoing inflation.
In the meantime, the BOE is likely to keep its interest rate steady at 4% in this month’s policy meeting, especially as UK inflation appears to be stable.
On Wednesday, BOE Governor Andrew Bailey shared some uncertainty regarding how quickly interest rates might be reduced. “I think the trend will be downward for rates, but there’s quite a bit of uncertainty about the speed of those cuts,” Bailey commented during a speech to the House Finance Committee.
Pound Sterling Trades Near 1.3470 Before US Data Release
- The pound is trading close to 1.3470 against the US Dollar (USD) during Friday’s European session, benefiting from a softer US dollar as investors await the non-farm payroll (NFP) data due later.
- Economists anticipate that the US will add around 75,000 jobs, roughly continuing from the previous estimate of 73,000, while the unemployment rate is expected to tick up to 4.3% from 4.2%.
- Average hourly earnings are projected to grow at a slower pace of 3.7%, down from 3.9% in July, with a monthly increase of 0.3%.
- The forthcoming employment report will be crucial for the Federal Reserve’s outlook on monetary policy, particularly after significant downward revisions in the previous NFP tallies for May and June.
- Federal Open Market Committee (FOMC) members have expressed concerns regarding potential risks to the labor market, largely tied to tariffs initiated by President Trump.
- According to the CME FedWatch tool, there’s growing confidence that the Fed will lower interest rates in its September meeting.
- The August ADP employment report has also revealed a slowdown in private sector hiring, and the ISM Services PMI has reported a reading of 52.0, better than the expected 51.0.
- Investors are also keenly watching the US Supreme Court’s decision on tariffs, as President Trump has recently pushed to expedite judicial support for additional import duties.
Technical Analysis: Pound Sterling Faces Resistance
The pound is expected to rise close to 1.3470 against the US dollar on Friday. However, the short-term trend for the GBP/USD pairappears to be relatively flat, as it remains near the 20-day exponential moving average (EMA).
The 14-day relative strength index (RSI) is hovering between 40.00 and 60.00, further suggesting a sideways movement.
A key support level exists at the August 1 low of 1.3140, while the height reached on August 14 of nearly 1.3600 could act as a significant barrier.
Economic Indicators Overview
Retail Sales (Mom)
The retail sales figures released by the Office for National Statistics each month measure the volume of goods sold by UK retailers directly to consumers. These changes are commonly viewed as a strong indicator of consumer spending habits. Generally, an increase in these figures is perceived positively for the pound sterling (GBP), whereas lower figures might be seen as negative.
