Pound Sterling struggles to attract bids despite upbeat UK Retail Sales data
- The Pound Sterling struggles to rebound even as UK Retail Sales data for September has come in surprisingly positive.
- UK Retail Sales rose by 0.5% on month, beating expectations of a 0.2% decline.
- Investors await high-stakes trade talks between the US and China.
The Pound Sterling (GBP) trades cautiously against its major curency peers on Friday, even as the United Kingdom (UK) Retail Sales data for September came out surprisingly positive.
The Office for National Statistics (ONS) reported that Retail Sales, a key measure of consumer spending, unexpectedly rose by 0.5% on a monthly basis, slower than 0.6% in August, which was revised higher from 0.5%. Still, data beat by far economists' expectations of a 0.2% decline.
On an annualized basis, the consumer spending measure grew at a robust pace of 1.5% against market consensus of 0.6% and the prior reading of 0.7%.
Signs of upbeat Retail Sales figures are likely to offer some relief to Bank of England (BoE) officials who became concerned over the UK economic outlook. On Thursday, BoE policymaker Swati Dhingra warned, in her prepared remarks at a conference organized by Ireland’s central bank, that United States (US) tariffs could put downward pressure on inflation and economic growth. “Tariffs means lower overall growth, and some downward pressure on prices in the medium term,” Dhingra said.
Meanwhile, investors brace for more volatility in the Pound Sterling as the flash S&P Global Purchasing Managers’ Index (PMI) data for October is scheduled to be published at 08:30 GMT.
Economists expect the UK Composite PMI to come in higher at 50.6 from 50.1 in September, suggesting that the overall business activity expanded at a faster pace. The Services PMI is seen higher at 51.0 against the prior reading of 50.8. The forecast for activities in the manufacturing sector shows continued contraction but at a slower pace. The Manufacturing PMI is seen up at 46.6 from the former 46.2.
Daily digest market movers: Pound Sterling consolidates against US Dollar ahead of US inflation data
- The Pound Sterling trades in a tight range around 1.3330 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair consolidates as investors shift to sidelines ahead of high-stakes trade talks between US Treasury Secretary Scott Bessent and China Vice Premier He Lifeng, which will start on Friday alongside the Association of Southeast Asian Nations (ASEAN) summit in Malaysia.
- Top negotiators from the US and China are expected to discuss how to ease trade frictions, which were prompted after China imposed export controls on rare earth minerals. In response, Washington threatened to curb software-powered exports from laptops to jet engines.
- In Friday’s session, investors will also focus on the release of the US Consumer Price Index (CPI) data for September, delayed due to the government shutdown, and the preliminary S&P Global PMI data for October, which will be published during the North America session.
- The market consensus on US headline inflation is about a rise at a faster pace of 3.1% on an annualized basis against the prior release of 2.9%. The core CPI – which excludes volatile food and energy items – is expected to have risen steadily by 3.1%. On a monthly basis, the headline and the core CPI are estimated to have risen by 0.4% and 0.3%, respectively.
- Signs of price pressures rising are unlikely to change dovish expectations of the Federal Reserve (Fed) monetary policy meeting scheduled next week, as policymakers have lately appeared more concerned about growing labor market risks. On the contrary, hot figures would boost them.
- Meanwhile, the US S&P Global PMI is expected to have expanded at a moderate pace due to slower services sector activity growth. The Services PMI is seen lower at 53.5 in October, from the previous 54.2.
Technical Analysis: Pound Sterling ranges against US Dollar around 1.3330
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The Pound Sterling trades sideways around 1.3330 against the US Dollar on Friday’s European session. The near-term trend of the GBP/USD pair remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which is around 1.3395.
The 14-day Relative Strength Index (RSI) wobbles near 40.00. A fresh bearish momentum would emerge if the RSI drops below that level.
Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 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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