Pound Sterling rises as UK Retail Sales unexpectedly return to growth
- The Pound Sterling moves higher against its currency peers after the release of upbeat UK Retail Sales data for December.
- UK Retail Sales rose by 0.4% MoM, beating market consensus of a contraction at a steady pace of 0.1%.
- The Federal Reserve is seen leaving interest rates steady in the monetary policy meeting next week.
The Pound Sterling (GBP) attracts bids against its major currency peers as the United Kingdom (UK) Retail Sales figures have grown in December, after contracting in the last two months. The Office for National Statistics (ONS) has reported that Retail Sales data, a key measure of consumer spending, rose by 0.4% month-on-month (MoM), while it was expected to decline steadily by 0.1%.
On an annualized basis, the consumer spending measure grew strongly by 2.5% against market consensus of a rise at a moderate pace of 1%, from 1.8% in November, which was revised higher from 0.6%.
Strong UK Retail Sales data is expected to weigh on market bets for interest rate cuts by the Bank of England (BoE) in the near term.
Investors brace for more volatility in the Pound Sterling during the flash UK S&P Global Purchasing Managers’ Index (PMI) release at 09:30 GMT. UK’s private sector business activity data is expected to show that the Services PMI expanded at a faster pace to 51.7 in January from 51.4 in December.
Next week will be light in terms of UK economic data, and market sentiment and expectations for the Bank of England’s (BoE) monetary policy outcome at the February meeting are set to drive the Pound Sterling.
Daily Digest Market Movers: US Dollar faces pressure amid concerns over Trump’s trade relations
- The Pound Sterling trades firmly near the two-week high of 1.3500 against a weakened US Dollar (USD) during the European trading session on Friday. The GBP/USD pair remains strong as the US Dollar (USD) underperforms across the board, with investors turning cautious over Trump’s long-term trade relations with its trading partners.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% higher to near 98.45. Still, the DXY is close to its two-week low of 98.28 posted on Thursday.
- Since the imposition of tariff policy by United States (US) President Donald Trump on his trading partners, in an attempt to fix the widened trade deficit, relations between Washington and other big economies such as India and China, have not been stable. Additionally, the US-Russia understanding has also been tested several times amid the war in Ukraine.
- Meanwhile, geopolitical and trade disputes between the US and the European Union (EU) have been resolved as Trump backed off on the possibility of purchasing Greenland forcefully and rolled back 10% tariffs imposed on several members of the old continent, after meeting with NATO Secretary General, Mark Rutte. In the meeting, both reached a framework of a “future deal with respect to Greenland, and in fact, the entire Arctic Region”.
- However, market experts believe that the framework is a temporary solution, and doesn’t solve Washington’s arbitrariness, raising concerns over the stability of global peace. This scenario also raises questions about the US Dollar’s reserve currency status.
- On the domestic front, investors await the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The Fed is expected to leave interest rates unchanged in the range of 3.50%-3.75%, according to the CME FedWatch tool.
Technical Analysis: GBP/USD trades firmly near 1.3500
GBP/USD clings to gains near 1.3500 as of writing. Price holds above the rising 20-day Exponential Moving Average (EMA) at 1.3441, keeping the near-term bias pointed higher.
The 14-day Relative Strength Index (RSI) at 59 (neutral) has ticked up, supporting improving momentum.
Measured from the 1.3793 high to the 1.3009 low, the 61.8% Fibonacci retracement at 1.3494 stands as immediate resistance and is being tested. A daily close above it would open a move toward the 78.6% retracement at 1.3625, while failure to clear it, would keep the rebound capped and encourage consolidation.
(The technical analysis of this story was written with the help of an AI tool.)
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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