Pound Sterling faces selling pressure as UK Retail Sales unexpectedly drop
- The Pound Sterling dips against its major peers as UK Retail Sales unexpectedly decline by 0.1% in November.
- The BoE reduced interest rates by 25 bps to 3.75% with a split 5-4 vote on Thursday.
- Investors await the announcement of the next Fed chairman, which is expected by the beginning of 2026.
The Pound Sterling (GBP) faces mild selling pressure against its major peers in Friday's early European session after data from the United Kingdom (UK) showed that Retail Sales unexpectedly declined in November.
The Office for National Statistics (ONS) has reported that Retail Sales, a key measure of consumer spending, surprisingly declined by 0.1% month-on-month, while these were expected to expand by 0.4%. However, the pace of decline was significantly lower compared to the 0.9% contraction seen in October, which was downwardly revised from 1.1%. Year-on-year, the consumer spending measure grew steadily by 0.6%, slower than the 0.9% projections.
Demand for automotive fuel and lower sales receipts at non-retailing stores dragged Retail Sales; however, demand for household goods, textile clothing and footwear stores remained robust, the data showed.
Consistently declining UK Retail Sales could raise concerns about the UK economy, which is already vulnerable due to a weak hiring trend and external risks.
Moving further, the next major trigger for the Pound Sterling will be expectations for the Bank of England's (BoE) monetary policy outlook.
On Thursday, the British currency rose sharply after the BoE reduced interest rates by 25 basis points (bps) to 3.75% with a tight vote, as expected. However, the upside move didn’t last long as the BoE retained its “gradually downward” monetary policy path stance and said it remained confident that “inflation will come closer to 2%” in the second quarter of 2026.
Daily digest market move: Pound Sterling drops against US Dollar
- The Pound Sterling ticks lower to near 1.3370 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair trades subdued due to surprisingly weak UK Retail Sales data and a rising US Dollar.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.17% higher near 98.60.
- The DXY rises after regaining ground as traders remain confident that the Federal Reserve (Fed) won't cut interest rates in its January monetary policy meeting despite soft United States (US) Consumer Price Index (CPI) data for November. The US CPI report showed that the headline and core inflation decelerated to 2.7% and 2.6% (YoY), respectively.
- Initially, the US Dollar reacted negatively to the soft inflation data released on Thursday, but it recovered later, as market experts believe the data was distorted by the government shutdown.
- According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 25 basis points (bps) to 3.25%-3.50% in the January meeting rises marginally to 25.5% from 24.4% seen on Wednesday.
- Going forward, the major trigger for the US Dollar could be the announcement of Fed Chair Jerome Powell’s successor by the White House. Latest reports show that major contenders for the next Fed chairman are White House Economic Adviser Kevin Hassett, former Fed Chairman Kevin Warsh, current Fed Governors Christopher Waller, and Michelle Bowman.
Technical Analysis: GBP/USD holds key 20-day EMA
GBP/USD edges down to near 1.3377 on Friday. The 20-day Exponential Moving Average (EMA) climbs steadily, with price holding above it and preserving the topside structure. A pullback toward the average at 1.3320 would likely attract bids.
The 14-day Relative Strength Index (RSI) at 59 (neutral-bullish) has cooled from recent highs, yet momentum remains on the buyers’ side.
The rising slope of the 20-day EMA validates higher lows, while recent dips have been contained. The pair could extend toward fresh cycle highs if it manages to break above the two-month high of 1.3455. However, a daily close back below the EMA would open room for a deeper correction towards the December 3 low of 1.3203.
(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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