British pound stabilizes, retail sales next

• US GDP revised downwards to 4.9%
• UK to release retail sales and GDP on Friday

The British pound has gained ground on Thursday. In the North American session, GBP/USD is trading at 1.2659, up 0.15%. On Wednesday, the pound fell 0.72% against the US dollar after a soft inflation report out of the UK.

In the US, third-estimate GDP for Q3 was revised downwards to 4.9% q/q, compared to 5.2% in the second estimate. Still, this marked the strongest growth since Q4 2021.

Will UK retail sales bounce back in November?

UK consumers haven’t been in the mood to spend, as the cost of living crisis and high interest rates continue to squeeze households. Retail sales have declined in three of the past four months and a pressing question is whether the Christmas season put a smile or a frown on the faces of retailers. Friday’s November report is expected at 0.4%, compared to a -0.3% reading in October.

The UK will also release on Friday third-estimate GDP for the three months to October, with a consensus estimate of 0%. This would confirm the second estimate and would indicate that the UK economy has stalled. In October, GDP declined by 0.3% m/m, which was lower than expected. The services sector reported a decline, as did manufacturing and construction. The UK economy has so far narrowly avoided a recession, but that could change in the fourth quarter or early 2024, with no signs of an economic rebound around the corner.

The Fed officially jumped on the rate-cut bandwagon at last week’s meeting, but the Fed remains much more hawkish than the markets about rate policy. The markets have priced in five rate cuts in 2024, while Fed Chair Powell pencilled in three cuts at the meeting and other Fed members remain cautious. Philadelphia Fed President Patrick Harker said on Wednesday that he favors continuing to hold rates in restrictive territory. Earlier in the week, Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly said that market expectations for rate cuts in early 2024 were premature.

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GBP/USD Technical

• GBP/USD tested support at 1.2637 earlier. The next support level is 1.2592
• 1.2666 and 1.2592 are the next resistance lines

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