GBP/USD slips on strong US retail sales

• GBP/USD down over half a percent
• US retail sales higher than expected
• UK inflation projected to decline on Wednesday

The British pound has declined 0.56% against the US dollar on Wednesday, wiping out yesterday’s gains. In the North American session, GBP/USD is trading at 1.2158, down 0.48%. The pound’s downswing was driven by a higher-than-expected US retail sales report.

US retail sales jump in September

Retail sales in the US surprised on the upside with a gain of 3.8% y/y in September. This beat the upwardly revised 2.9% rise in August and crushed the market estimate of 1.5%. On a monthly basis, retail sales rose 0.7%, compared to an upwardly revised 0.8% in August and well above the market estimate of 0.3%. Core retail sales, which exclude automobiles and gasoline, rose by 0.6% m/m, down from an upwardly revised 0.9% in August but easily beating the market estimate of 0.2%.

The better-than-expected retail sales report indicates that consumer spending remains robust despite the challenging economic picture, which includes high inflation and elevated borrowing costs. Consumer spending likely accelerated in the third quarter and that will be reflected in the consumer spending component of GDP.

The UK releases inflation on Wednesday. September CPI is expected to tick lower to 6.6% after a 6.7% reading in August. Inflation is at its lowest level since February 2022 but remains more than three times above the Bank of England’s 2% target. The core rate, which excludes food and energy is closely monitored by the BoE, is expected to dip to 6.0%, compared to 6.2% in August.

If inflation falls as expected or even further, it will provide support for the BoE to pause for a second straight time at the November 2^nd meeting and the pound could react with losses. The Bank’s decision to hold rates at the October meeting was a narrow 5-4 vote and Governor Bailey said yesterday that he expected upcoming rate decisions to be tight as well.

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GBP/USD Technical

• GBP/USD has pushed below support at 1.2202. Below, there is support at 1.2104
• There is resistance at 1.2281 and 1.2343

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