GBP/USD – Strong Retail Sales Sends Pound Above 1.25

GBP/USD has climbed above the 1.25 level on Thursday, as the pair has hit 4-week highs. In the North American session, the pair is trading at 1.2520. On the release front, British Retail Sales posted a strong gain of 1.4%, crushing the estimate of 0.4%. As well, CBI Realized Sales held steady at 9 points, above the forecast of 4 points. In the US, unemployment claims jumped to 258 thousand, well above the forecast of 240 thousand. There was better news from New Home Sales, which improved to 592 thousand, compared to a forecast of 566 thousand.

This week’s focus has been on British consumer indicators. Retail Sales sparkled in February with a gain of 1.4%, its highest gain since October 2016. At the same time, for the three months to February, retail sales suffered their biggest slide since 2010. This points to an erosion in consumer spending due to the weak pound, which has fallen 17% since the Brexit vote last June. The weak currency and higher oil prices have also sent inflation higher. CPI climbed 2.3% in February, beating the forecast of 2.1%. This is a significant reading, as it surpassed the BoE’s inflation target of 2.0% for the first time in three years. Higher inflation levels have increased speculation that the Bank of England, which has had a neutral stance on rate policy, could raise rates this year. On Thursday, BoE deputy governor Ben Broadbent said that a rate hike was a possibility.

With the Fed pressing the rate trigger last week, what’s next for the U.S. central bank? The Fed’s rate statement and dot plot indicated that the Fed is looking at another two hikes in 2017, which would make three in total. This forecast was reiterated by Chicago Fed President Charles Evans earlier this week. Although one could make a strong case that three rate hikes in 2017 would be impressive, the markets appear disappointed, and would like four hikes, given the strong performance of the US economy. The Fed’s cautious approach has soured sentiment towards the greenback, resulting in the dollar heading lower against its major rivals. The pound has taken full advantage, rising 3.0% since the Fed rate announcement last week.

GBP/USD Fundamentals

Thursday (March 23)

• 5:00 BOE Deputy Governor Ben Broadbent Speech
• 5:30 UK Retail Sales. Estimate 0.4%. Actual 1.4%
• 8:30 US Unemployment Claims. Estimate 240K. Actual 258K
• 8:45 US Fed Chair Janet Yellen Speech
• 10:00 US New Home Sales. Estimate 566K. Actual 592K
• 10:30 US Natural Gas Storage. Estimate -147B. Actual -150B
• 12:30 US FOMC Member Neel Kashkari Speech
• 19:00 US FOMC Member Robert Kaplan Speech

Upcoming Key Events

Friday (March 24)

• 8:30 US Core Durable Goods Orders. Estimate 0.5%

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, March 23, 2017

GBP/USD March 23 at 10:45 EST

Open: 1.2470 High: 1.2527 Low: 1.2462 Close: 1.2521

GBP/USD Technical

• GBP/USD continues to break above resistance lines this week. On Thursday, the pair edged higher in the Asian session. GBP/USD was choppy in European trade and has edged higher in the North American session
• 1.2471 is a weak support line
• 1.2515 is the next resistance line

Further levels in both directions:

• Below: 1.2471, 1.2351 and 1.2272
• Above: 1.2571, 1.2706 and 1,2865
• Current range: 1.2471 to 1.2706

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Thursday session. Currently, long positions have a majority (55%). This is indicative of trader bias towards GBP/USD continuing to climb higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.