The British Pound Sterling (GBP) demonstrated unexpected resilience against the US Dollar (USD) on Friday, trading near 1.3380 during the European session. Even taking into account a stunning plunge in UK retail sales numbers, this was a head-turning performance. Under typical circumstances, such a fall would put significant downward pressure on the currency. The GBP/USD currency pair retreated modestly to about 1.3377. On the short-term, it’s still making a very steep climb upward.
These recent swings in GBP/USD are just a small part of an even larger story playing out in foreign exchange markets. The 20-day Exponential Moving Average (EMA) for GBP/USD is rising by the day. In both technical and fundamental aspects, this increase indicates a bullish trend in the currency pair. Especially as analysts point out that GBP/USD has been confirming higher lows, illustrating the optimism perpetuating the British currency.
GBP/USD Movement and Market Dynamics
Despite the recent dip in GBP/USD, the pair has shown resilience, with recent declines contained and exhibiting a flattening pattern through market activity. The 14-day Relative Strength Index (RSI) for GBP/USD is at 59, which is neutral-bullish. Though RSI has retreated from August peaks, it continues to show that buyers still have positive force for the currency pair.
Weakening the Pound is a difficult strategy to pull off the same time the US Dollar is winning. Such a situation should be a heads up for any time market dynamics are being raised. The British currency, the pound, jumped suddenly after the Bank of England reduced interest rates by 25 basis points to 3.75%. Economists had long expected this shift. This decision, of course, came during an unprecedented period of debate, both domestically and abroad, about inflationary direction in the UK.
“Inflation will come closer to 2%” – Bank of England
This latest pronouncement by the Bank of England highlights a tone of cautious optimism about continued economic recovery and stabilizing inflation. US inflation data are starting to roll over. Today, as headline inflation retreated to 2.7% and core inflation to 2.6% year-on-year, forecasters’ eyes are glued to currency performance as the door creaks open on policy implications.
Implications of UK Retail Sales Data
After last week’s surprising bust in US retail sales, this week’s UK retail sales data followed suit with equally unexpected declines. Under regular circumstances, this would have led to a plunge in the currency. Yet GBP/USD held firm on this news, too. Perhaps no sector is a better barometer of consumer confidence and economic health than the $6 trillion retail sector. This recent dip is worrisome for long-term growth.
This is reflected in the steady 0.6% growth of consumer spending measures year-on-year. This growth was less than the expected forecasted growth of 0.9%. Mismatches between real-world performance and market sentiment can lead to spikes in currency market volatility. Considering all of these ups and downs, the GBP has remained surprisingly stable.
Market analysts claim that any deeper retracements towards the mean price of 1.3320 would entice buyers into GBP/USD. Traders will want to look for a failed daily close above the EMA for GBP/USD. Should that play out, it may open up prospects for a deeper breach of the December 3 low at 1.3203.
Outlook for GBP/USD
Analysts are bullish on GBP/USD recovery. Given a clean break above the two-month high at 1.3455, the pair can see its advance extend further towards fresh cycle high territory. Favorable economic indicators will become critically important here. Continued strong demand from purchasers will be crucial to break down that threshold of resistance.