Market Analysis

The Pound Sterling (GBP) edged higher during Friday's London session following the release of stronger-than-expected Retail Sales data for May by the United Kingdom's Office for National Statistics (ONS). The report revealed that monthly Retail Sales rebounded with a robust growth of 2.9%, surpassing the anticipated 1.5%. Annually, Retail Sales rose by 1.3%, defying investor expectations of a 0.9% decline.

Retail Sales serve as an indicator of consumer spending, a critical component of economic growth. The notable improvement in retail store sales, despite the Bank of England's (BoE) higher interest rates, signals strong demand but also suggests rising price pressures ahead. If this trend continues, it could pose a challenge for the BoE, which is focused on achieving price stability.

On Thursday, the BoE kept interest rates steady at 5.25% in a 7-2 vote, as expected. BoE policymakers acknowledged that headline inflation is projected to return to the bank’s 2% target within three years, but stated that this is insufficient given the persistent high price pressures in the service sector. Currently, financial markets anticipate that the BoE will start reducing interest rates in August, implying no rate cuts before the parliamentary elections. Pre-election polls indicate that the Conservative Party, led by Prime Minister Rishi Sunak, is trailing the opposition Labour Party by about 20 points, according to Reuters.

Looking ahead, investors will turn their attention to the preliminary UK's S&P Global/CIPS PMI data for June, which is set to be released at 08:30 GMT. The PMI report is expected to show minimal growth in the Composite PMI.

Technical Analysis: Pound Sterling remains below the 20-day and 50-day EMAs

The Pound Sterling found temporary support near 1.2670 after the release of the upbeat UK Retail Sales data for May. However, the near-term outlook remains uncertain as the GBP/USD pair is trading below the 20-day and 50-day Exponential Moving Averages (EMAs), positioned around 1.2700 and 1.2670, respectively.

The Cable is struggling to hold the 61.8% Fibonacci retracement support at 1.2667, drawn from the March 8 high of 1.2900 to the April 22 low of 1.2300.

The 14-period Relative Strength Index (RSI) has retreated into the 40.00-60.00 range, indicating that the upward momentum has weakened.

Paraphrasing text from "FX Street" all rights reserved by the original author.