Pound yawns after mixed UK data

The British pound continues to have an uneventful week and the lack of activity has continued in the Friday session. GBP/USD has been trading close to the 1.38 level for most of the week and is currently at 1.3804, up 0.09% on the day.

UK Retail Sales dip

UK Retail Sales declined by 0.2% in September. This is a cause for concern, given that retail sales have now declined for three straight months, pointing to ongoing weakness in consumer spending. Retail sales remain subdued despite the relaxation of Covid restrictions in July, which has not resulted in consumers increasing their spending. On a positive note, retail sales remain above the pre-pandemic levels (February 2020).

There was better news from the September PMIs. Both the manufacturing and services PMIs accelerated and beat expectations, with readings of 57.7 and 58.0, respectively. This points to strong expansion in both sectors.

The markets have priced in a November rate hike, likely by 15 basis points. Although this would be a relatively small increase, it would mark the first rate hike by a major central bank since the Covid pandemic began. BoE Governor Andrew Bailey is poised to raise rates in order to curb inflation, which is running above 3%, well above the bank’s target of 2%. A majority of MPC members are expected to follow suit, but a vocal minority of members are warning that the move is unwarranted and could dampen the recovery and hurt growth and jobs.

In the US, positive data on Thursday gave the dollar a boost, although the pound has recovered much of these losses on Friday. The dollar index continues to trade in a range between 93.50 and 94.00 and is at 93.67 in Europe. A drop below 93.50 could see the index fall to the 0.93 line.

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GBP/USD Technical Analysis

• On the upside, there is a triple top at 1.3830. A close above this line would leave the pair room to climb until resistance at the round number of 1.3900
• There are support levels at 1.368 and 1.3492

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