Pound Sterling gains as UK monthly Retail Sales beat estimates
- The Pound Sterling moves higher against its peers on better-than-projected UK monthly Retail Sales data for July.
- UK Retail Sales rose by 0.6% on the month, higher than expectations of 0.2%.
- Investors await key US NFP data for August.
The Pound Sterling (GBP) attracts bids against its peers on Friday after the release of the upbeat United Kingdom (UK) Retail Sales data for July. The Office for National Statistics (ONS) reported that Retail Sales, a key measure of consumer spending, surprisingly grew at a faster pace of 0.6% on a monthly basis, compared to the 0.2% expected by economists. In June, the consumer spending measure rose 0.3%, revised lower from 0.9%.
On an annualized basis, the Retail Sales data has risen by 1.1%, missing estimates of 1.3%. However, the pace of growth was faster than the 0.9% increase seen in June, revised lower from 1.7%.
Signs of rising UK retal sales demonstrate strong consumer demand, which often leads to the maintenance of a restrictive monetary policy stance by the Bank of England (BoE) as it could lead to higher consumer inflation.
Meanwhile, the BoE is expected to maintain interest rates at their current level of 4% in the policy meeting this month, as inflation in the UK is proving to be persistent.
BoE Governor Andrew Bailey also expressed uncertainty over the pace of interest rate cuts on Wednesday, in his speech before the House of Commons' Treasury Committee. “I think path for rates will continue to be downwards, but there is considerably more doubt on how fast we can cut rates,” Bailey said.
Daily digest market movers: Pound Sterling gains against US Dollar ahead of US NFP data
- The Pound Sterling moves higher to near 1.3470 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair gains while the US Dollar wobbles ahead of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published at 12:30 GMT.
- Economists expect US employers to have hired 75K fresh workers, almost in line with the July reading of 73K. The Unemployment Rate is expected to have accelerated to 4.3% from the previous release of 4.2%. Meanwhile, Average Hourly Earnings, a key measure of wage growth, is expected to have grown at a moderate pace of 3.7%, compared to 3.9% in July, with monthly figures rising steadily by 0.3%.
- The impact of the official employment report is expected to be significant on the Federal Reserve’s (Fed) monetary policy outlook. Traders raised Fed dovish expectations for the September policy meeting in early August after July’s NFP report showed a significant downward revision in payrolls figures of May and June.
- Additionally, Federal Open Market Committee (FOMC) members have also warned about escalating downside risks to the labor market in the wake of tariffs announced by US President Donald Trump.
- According to the CME FedWatch tool, the Fed is certain to cut interest rates in the September policy meeting.
- Meanwhile, the ADP Employment Change report for August, on Thursday, also showed a slowdown in labor demand in the private sector. Moreover, the ISM Services PMI came in higher at 52.0 against expectations of 51.0, and the prior release of 50.1.
- Going forward, investors will also focus on the US Supreme Court’s verdict regarding Trump’s tariffs. On Wednesday, the President took the Appeals Court vs. tariffs to the Supreme Court and urged judges to rule in favor of additional import duties quickly. Lately, the appeals court gave a verdict against a majority of tariffs, citing them “illegal” and accusing Trump of abusing his powers.
Technical Analysis: Pound Sterling trades close to 20-day EMA
The Pound Sterling rises to near 1.3470 against the US Dollar on Friday. However, the near-term trend of the GBP/USD pair is sideways as it trades close to the 20-day Exponential Moving Average (EMA), which is around 1.3470.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the August 14 high near 1.3600 will act as a key barrier.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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