Pound under pressure

The British pound has steadied on Friday, after suffering sharp losses a day earlier. GBP/USD is currently trading at 1.3627, down 0.07% on the day.

The pound is hoping for a quick end to what has been a miserable week quickly. The currency has fallen 1.7% so far this week.

UK Retail Sales slide

UK Retail Sales in July fell by 2.5% compared to June, well off the forecast of +0.4%. It was a similar story for Core Retail Sales, which came in at -.2.4%, versus 0.3% exp. Still, the reaction of the pound has been muted, as the picture isn’t nearly as grim if we look at the overall picture. Retail Sales were up 5.2% in the three months to July compared to the previous three months, and 5.8% higher than in February 2020, prior to Covid-19.

Nevertheless, the pound is in trouble, as the US dollar continues to roll. Sterling is closing in on its lowest level since February, and we could see the currency drop into 1.35-territory early next week.

Investors have been flocking to the safe-haven US dollar, as risk appetite has eroded due to surging infections rates of the delta variant of Covid. This has led to renewed lockdowns and health restrictions and could hamper the nascent global recovery.

The dollar has looked sharp post-FOMC, as the markets judged the Fed minutes to be hawkish, despite the lack of a timeframe for a tapering. With most members on board for a taper on either side of December, it’s clear that a taper is a question of when, rather than if, at this stage. The minutes stressed that there was no mechanical link between tapering and rate hikes. This is not really a new development, as the Fed has said in the past that it does not plan to raise rates before tapering is completed.

With risk appetite curbed by a resurgence in Covid and investors on alert for the announcement of a timeframe for tapering, the outlook for the US dollar remains positive.

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GBP/USD Technical Analysis

• On the upside, there is monthly resistance at 1.3659. Above, there is resistance at 1.3749
• There is support at 1.3409, followed by 1.3247

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