- The Pound Sterling weakens against the US Dollar despite some investors see Trump’s tariffs agenda as a tactic to close deals in a better position.
- UK’s upbeat Retail Sales, hot inflation, and strong wage growth are expected to weigh heavily on BoE’s dovish bets.
- Investors await the preliminary S&P Global US PMI data for February.
The Pound Sterling (GBP) falls back after posting a fresh two-month high near 1.2680 against the US Dollar in European trading hours on Friday. The GBP/USD pair surrenders intraday gains and turns negative as the US Dollar bounces back. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds to near 106.65 from its Year-To-Date (YTD) low of around 106.30, which it posted on Thursday.
On Thursday, the Greenback tumbled as its risk premium had diminished, with investors anticipating that United States (US) President Donald Trump’s tariff agenda won’t lead to a significant slowdown in the global economy.
Till now, President Trump has imposed 25% tariffs on aluminum and steel and 10% on all imports from China. He has threatened to impose a 25% levy on cars, semiconductors, and pharmaceuticals and the introduction of reciprocal tariffs without any detail and timeline. Investors had anticipated that Trump would announce a slew of tariffs soon after returning to the White House in January, based on his comments in the election campaign, which has forced them to believe that Trump’s tariff policies are just a ‘tactic’ to have the upper hand while having negotiations with his allies.
On the monetary policy front, Federal Reserve (Fed) officials have been guiding a restrictive monetary policy stance. On Thursday, Fed Governor Adriana Kugler said that the central bank should keep borrowing rates “in place” for “some time,” noting the net effect of new economic policies is “highly uncertain” and will depend on the “specifics.”
In Friday’s session, investors will focus on the preliminary S&P Global US PMI data for February.
Daily digest market movers: Pound Sterling rises on upbeat UK Retail Sales data
- The Pound Sterling rises against its major peers, except the US Dollar (USD), on Friday after the release of robust United Kingdom (UK) Retail Sales data for January. The Office for National Statistics (ONS) reported that Retail Sales, a key measure of consumer spending, rose at a robust pace of 1.7% in the month after contracting by 0.6% in December, revised lower from -0.3%. Economists expected the consumer spending measure to have grown at a moderate pace of 0.3%.
- Year-on-year Retail Sales rose by 1%, beating the estimate of 0.6%, but remained lower than the 2.8% growth seen in 12 months to December.
- Upbeat Retail Sales data is expected to force traders to further pare their bets on the Bank of England (BoE) cutting interest rates again in the March meeting. The BoE’s dovish bets were already challenged by a hotter-than-expected Consumer Price Index (CPI) report for January and strong Average Earnings data in the three months ending December.
- However, investors are unlikely to become increasingly optimistic about the British currency’s outlook as BoE Governor Andrew Bailey remains concerned over economic prospects this year. Earlier this week, Bailey warned that the economic growth is expected to remain sluggish. In the monetary policy meeting earlier this month, the BoE halved its annual Gross Domestic Product (GDP) forecasts for the year to 0.75%.
- Meanwhile, flash S&P Global/CIPS Purchasing Managers Index (PMI) data for February has come in line with estimates. The Composite PMI expanded at a slower pace to 50.5 from 50.6 in January. Activities in the manufacturing and services sectors contracted and expanded, respectively, at a surprisingly faster pace.
Technical Analysis: Pound Sterling holds above 38.2% Fibo retracement
The Pound Sterling posts a fresh two-month high against the US Dollar near 1.2680 on Friday. The GBP/USD strengthens after breaking above the 38.2% Fibonacci retracement from the end-September high to the mid-January low downtrend, which coincided with the 100-day Exponential Moving Average (EMA), around 1.2620.
The 14-day Relative Strength Index (RSI) holds above 60.00. The bullish momentum would fizzle out if the RSI (14) fails to sustain above that level.
Looking down, the February 11 low of 1.2333 will act as a key support zone for the pair. On the upside, the 50% Fibonacci retracement at 1.2767 will act as a key resistance zone.
Economic Indicator
Retail Sales (MoM)
The Retail Sales data, released by the Office for National Statistics on a monthly basis, measures the volume of sales of goods by retailers in Great Britain directly to end customers. Changes in Retail Sales are widely followed as an indicator of consumer spending. Percent changes reflect the rate of changes in such sales, with the MoM reading comparing sales volumes in the reference month with the previous month. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
