Market Analysis

The pound continues to gain ground while UK retail sales increase as anticipated

Amos Simanungkalit · 16 Aug18.6K Views

The Pound Sterling (GBP) is outperforming most major currencies, except those from the Asia-Pacific region, during Friday’s London trading session. The British currency has strengthened significantly following a report from the UK Office for National Statistics (ONS), which indicated a rebound in Retail Sales for July after a sharp decline in June.

The data revealed that Retail Sales increased by 0.5% month-over-month and 1.4% year-over-year. Notable growth was observed in department stores and sports equipment outlets, driven by summer sales and events like the European Football Championship. However, there was a significant drop in demand for automotive fuel.

Retail Sales are a crucial gauge of consumer spending. Strong consumer demand can lead to higher inflation, which might lessen the likelihood of the Bank of England (BoE) implementing another interest rate cut in September. The BoE began lowering its key borrowing rates in early August, though the decision was close, with a 5-4 vote split.

The BoE’s upcoming monetary policy meeting in September may also be contentious. While inflation in the UK service sector sharply declined in July due to slower wage growth, recent labor market data showed a surprising drop in the Unemployment Rate, indicating that the economy is expanding.

Technical Forecast: Pound Sterling Nears 1.2900

The Pound Sterling has risen to approximately 1.2885 against the US Dollar. The GBP/USD pair has continued its upward trend from a six-week low of 1.2665, following a positive divergence formation on the daily chart. This pattern, where the pair forms higher lows while the momentum oscillator records lower lows, often leads to a resumption of the uptrend, though confirmation from additional indicators is needed.

The 14-day Relative Strength Index (RSI) has recovered from around 40.00, suggesting renewed buying interest.

On the upside, key resistance levels for the Pound Sterling are the psychological barrier at 1.3000 and the annual high of 1.3044. Conversely, a decline below the August 8 low of 1.2665 could lead to further weakness, potentially targeting the June 27 low of 1.2613 and the April 29 high of 1.2570.