GBP/USD extends gains as retail sales bounce back

The British pound has extended its gains on Friday. GBP/USD is trading at 1.2887 in the European session, up 0.31% on the day at the time of writing. It has been a winning week for the pound, which has climbed 1%.

UK retail sales jump in July

There was more good news from the UK economy as retail sales rebounded in July by 0.5% m/m, after a revised decline of 0.9% in June and in line with the market estimate. Annually, GDP surged 1.4%, compared to -0.8% in June and matching the market estimate. The pound has moved higher in response to the positive retail sales data.

The bounce in retail sales reflects summer discounts and purchases related to the Euro 2024 and the Paris Olympics, such as apparel. As well, with inflation finally under control and running close to 2%, consumers are responding by opening up their wallets and purses. The positive retail sales report follows yesterday’s solid GDP release. The UK economy recorded rose 0.6% in Q2, a second straight quarter of growth.

The economy is showing some strength in the second quarter but that may not have much effect on the Bank of England’s rate path. The increase in growth may not be sustainable and BoE policy makers have said that they are more focused on inflation, particularly service inflation, which remains much higher than the BoE’s 2% target. The markets are expecting further cutting before the end of the year and have priced in a rate reduction at the November meeting.
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GBP/USD Technical

• GBP/USD is testing resistance at 1.2884. Above, there is resistance at 1.2914
• 1.2841 and 1.2811 are the next support levels

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