Throughout most of the last few trading sessions, the British Pound has been showing weakness. It has turned out to be the strongest currency versus the Kiwi. The overall picture is still cloudy. More bearish signals are coming. GBP/USD broke its channel overnight on Thursday and is heading towards the bottom of the G20 floor at 1.13. With retail sales data looming, analysts are closely monitoring whether consumer spending will bolster the Pound or contribute to its decline.
On Thursday, the GBP/USD pair provided a bearish technical indication by breaking under its previously-defined channel to 1.3620. This bears descending activity has exacerbated a deep bearish trend. It’s forcing the price action towards the moving average in 100 periods Simple Moving Average on the chart 4 hours, currently at 1.3527. Bears will point out the market’s jittery sentiment, especially with predictions calling for a major drop-off in retail sales growth for August.
Retail Sales Forecasts Signal Caution
The consensus previewing August retail sales has a 0.4% month-on-month rise, which would be down from July’s 0.6% increase. What’s more, year-on-year growth is predicted to improve by a mere 0.6% — nearly half the rate of growth we had last year at 1.1%. Retail sales volumes fell by 0.6% in July’s final figure, bringing to an end four consecutive months of growth. This anticipated decrease follows three months in a row of declining sales.
The British Retail Consortium (BRC) recently announced that retailers had an unseasonably booming summer. They’re doing so as they head into the fourth quarter with a great deal of trepidation. Helen Dickinson, chief executive of the BRC, emphasized this sentiment, stating:
“Despite a strong summer, retailers are approaching the fourth quarter with caution. The government’s budget due at the end of November, just before Black Friday, raises uncertainties that could weigh on consumer confidence.”
The more sober forecast is in line with the latest Consumer Confidence Index which has fallen for three straight months as of August. Households are bracing for worsening food inflation and skyrocketing energy prices. This will likely shift their spending priorities too, as we approach the holiday shopping season.
Economic Indicators Show Mixed Signals
Now, the current economic landscape sends a conflicting message about a possible recession hitting the UK economy, exerting even more downward pressure on the British Pound. The government’s Spending Review is expected to be announced in late November. This decision would add even more uncertainty, rattling consumer confidence right as retailers start gearing up for the crucial Black Friday shopping season.
It’s worth noting that the summer’s comeback was supported by many different sectors. Non-food retailing segments such as clothing, online sales, and electronic goods were major contributors to this growth. These gains were very much helped by things like perfect weather and the Euro 2025 women’s boost. Fuel sales are taken out of the equation entirely. Without them, growth remains anemic, with forecasts pegging an increase of just 0.3% m/m, down from 0.5% in July.
Yet these sentiments are emblematic of a larger consumer climate, where consumers are wary to spend during continued economic strife.
“Glimmers of hope exist, between lower rates and easing on home loans, but consumers remain under emotional and financial pressure.”
Detailed technical analysis of the GBP/USD pair suggests pressure to go lower in the days/ weeks ahead. If this pair breaches current support, we could expect that pressure to become stronger. Analysts are warning that should the price drop below 1.3620, the pair could be on track to retest the recent lows at 1.3400 on August 11 and August 22. Beyond that, attention turns to September’s 1.3333 low.
Technical Analysis Points to Potential Downward Movement
In order to stay on a bullish path, the rebound will need to regain territory initially over 1.3620. Only then can it probe for resistance levels above 1.3750. These technical indicators further highlight the choppiness in currency trading as traders, investors, and speculators react to an unknown-moving economic prime.
Conversely, any potential rebound must first reclaim ground above 1.3620 to maintain a bullish trajectory before testing resistance levels around 1.3750. These technical indicators underscore the volatility in currency trading as market participants navigate an uncertain economic environment.