GBP/USD edges lower on soft UK retail sales

• UK retail sales decline unexpectedly
• GBP/USD edges lower

The British pound is trading lower on Friday. In the European session, GBP/USD is trading at 1.2381, down 0.27%.

The pound has shown sharp swings this week, notably a 1.78% jump on Tuesday after US inflation was weaker than expected, sending the US dollar sharply lower against the majors. The pound is up 1.28% this week.

UK retail sales decline

UK retail sales were expected to bounce back in October, after a revised decline of 1.1% m/m in September. Instead, retail sales declined by 0.3% m/m, missing the market consensus of 0.3%. This was the third decline in four months. Fuel sales were down and consumers are being more cautious in their spending. The wet weather has also dampened consumer spending.

On a yearly basis, retail sales slid by 2.7%, down from a revised 1.3% and much weaker than the market consensus of -1.5%. This marked a 19th straight decline, pointing to a dismal picture of consumer spending which could result in a contraction in fourth-quarter GDP.

Consumer confidence remains deeply pessimistic, as high interest rates and high inflation continue to batter consumers. Inflation has fallen to a two-year low of 4.6%, but consumers continue to see higher and higher prices, which has put a damper on consumer spending.

In the US, the latest economic data points to a gradual slowdown, as seen in this week’s inflation and retail sales prints. Thursday’s unemployment claims were further evidence of this trend, with claims rising to a three-month high at 231,000. US Treasury yields fell on Thursday to 4.45%, down from 4.53%, as speculation continues to rise that the Fed has ended or is very close to ending the current rate-tightening cycle. There are hopes for a soft landing for the US economy, as inflation is falling while growth remains strong, which is the so-called Goldilocks scenario.

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GBP/USD Technical

• GBP/USD is putting pressure on support at 1.2374. Below, there is support at 1.2312
• 1.2476 and 1.2522 are the next resistance lines

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