GBP/USD remains seen under a difficult trading conditions, and yet holding above some vital support of 1.3000. Having opened broadly higher on Friday, the two continued to trade in a positive manner for the second straight day. Yet, it would remain subdue from yesterday’s trading range. In particular, it floats about the 1.3100 level in the early European morning.
The latest economic numbers from the United Kingdom has sent shudders through the investing world. Disappointing figures regarding UK retail sales have surfaced, with analysts predicting an expected fiscal drag from the upcoming UK budget. This unprecedented confluence has led many to speculate about the BOE’s fortunes. Most think it could signal a greater degree of easing than the expected 63bp of cuts over the next 12 months. Recessionary conditions, such as negative GDP growth and soaring inflation, are putting pressure on GBP/USD. The atmosphere is particularly charged with the UK budget announcement coming up next week.
UK Retail Sales Drop
Just yesterday, it was reported that UK retail sales growth had unexpectedly plummeted even more than analysts had predicted in October. Retailers have warned consumers are already delaying spend in expectation of Black Friday price cuts.
“UK retail sales growth falls more than expected in October with retailers reporting that consumers held back in preparation for Black Friday discounts. Total retail sales volumes dropped -1.1% m/m (consensus: -0.2%) vs. 0.7% in September (revised up from 0.5%). Excluding auto fuel, retail sales volumes declined -1.0% m/m (consensus: -0.5%) vs. 0.7% in September (revised up from 0.6%).” – Office for National Statistics
The decline in retail activity will almost certainly add further pressure onto the British Pound. Yet underneath this trend lies a deep economic pain that consumers and businesses are feeling right now.
Market Reactions and Expectations
So far, the market’s reaction to these economic indicators has been lackluster. GBP/USD remains very much under water still above the key psychological support at 1.3000 mark. All eyes are firmly set on the next UK budget statement from Chancellor Jeremy Hunt. They expect to learn powerful new information about the federal government’s fiscal agenda and even economic relief efforts.
Many analysts think the new data could force the BOE into a more hawkish easing stance. They hope this change comes a lot quicker than anticipated. Whether or not it happens, the excitement around this possible change could impact trading patterns in the weeks ahead.
Implications for GBP/USD
As the British Pound continues to fight some strong economic currents. Regardless, the near-term reaction of GBP/USD should prove to be interesting. The currency duo needs to keep its support above the 1.3000 level to remain assertive. Traders are intently assessing just what domestic economic conditions and external market influences (things like trade) will bear on it.
The broader trading picture reveals that GBP/USD is caught in a tight range. Continued lack of clarity on the UK’s path to economic recovery has led many market participants to adopt a wait-and-see approach.