When are the UK Retail Sales and how could they affect GBP/USD?
The UK Retail Sales Overview
The United Kingdom (UK) docket has the Retail Sales data for December to be released by the Office for National Statistics (ONS) on Friday, later this session at 07:00 GMT.
UK Retail Sales are expected to decline by 0.1% month-over-month (MoM) in December, following a 0.1% decline seen in November. On an annualized basis, Retail Sales are seen rising 1% during the reported month, inching higher from the previous increase of 0.6%.
Core Retail Sales, stripping the basket of motor fuel sales, are expected to fall 0.2% MoM, matching the prior decline, while YoY growth may rise to 1.4% from 1.2% in November.
How could the UK Retail Sales affect GBP/USD?
GBP/USD pair may remain silent even if UK Retail Sales data for December come stronger-than-expected, as the Bank of England (BoE) is widely expected to stay put on a gradual easing path, even as price pressures accelerated in December. Focus will be shifted toward the preliminary S&P Global Purchasing Managers’ Index (PMI) data for January from the United Kingdom (UK) and the United States (US) due later in the day.
The GBP/USD pair may regain its ground as the US Dollar (USD) struggles with increased risk aversion, which could be attributed to the geopolitical tensions. US President Donald Trump initially threatened tariffs against European countries opposing his Greenland plan, but later backed down after securing a NATO framework agreement for a potential deal.
Technically, the GBP/USD pair remains steady after gaining more than 0.5% in the previous session, trading around 1.3500 at the time of writing. The pair may target the three-month high of 1.3562 as the next barrier. The immediate support lies at the nine-day Exponential Moving Average (EMA) of 1.3451, followed by the 50-day EMA at 1.3398.
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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