British Pound: Soft retail data and curve repricing risks – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad observes GBP/USD trading directionless near its 200-day moving average around 1.3423, with downside risks from potential United Kingdom (UK) swaps curve repricing and a possible leftward shift under a Labour government. Weaker-than-expected April retail sales and an overly aggressive Bank of England (BoE) tightening path versus a projected negative output gap weigh on the Pound outlook.

Pound pressured by weak data and BoE pricing

"GBP/USD is directionless near its 200-day moving average at 1.3423. Scope for a downward adjustment to the UK swaps curve alongside the rising likelihood the Labour government pivots further leftwards can further undermine GBP."

"UK retail sales fell more than expected in April. Total retail sales volumes declined -1.3% m/m (consensus: -0.6%) vs. 0.6% in March (revised down from 0.7%) driven by fuel sales. Total retail sales, excluding automotive fuel, dropped -0.4% m/m (consensus: -0.3%) vs. 0.1% in March (revised down from 0.2%) dragged down by both clothing and non-store retailers."

"The swaps curve continues to imply a full 50bps of Bank of England (BoE) rate hikes to 4.25% in the next twelve months. That’s too aggressive given the BOE estimates a negative output gap between -1.5% and -1.7% GDP in 2026, and leading indicators point to a contraction in private sector activity over Q2."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)