GBP/USD steady despite plunge in retail sales

The British pound continues to have a quiet week in which it has stayed close to the 1.27 line. GBP/USD is trading at 1.2715, up 0.13% at the time of writing in the European session.

UK retail sales tumbles 2.3%

UK retail spending slumped in April with a 2.3% m/m decline. This followed a revised 0.2% decline in March and was much weaker than the market estimate of -0.4%. It was the largest decrease in four months, driven by a sharp fall gasoline and non-food items. Most sectors reported a drop in sales volume as unusually rainy weather put a damper consumer spending. On an annualized basis, retail sales fell 2.7%, after a revised 0.4% gain in March and missing the market estimate of -0.2%.

Is the UK economy fading? The economy performed well in the first quarter, with Q1 GDP rising 0.6% q/q, its strongest quarter in over two years. The weak retail sales could be indicative of a weaker second quarter, which would support the BoE lowering the current cash rate of 5.25% which is throttling economic activity. With inflation falling to 2.3% in April, the 2% target is within striking distance and speculation has risen that the BoE will start to lower rates as early as August.

In the US, the services and manufacturing sectors showed improvement in May. Services PMI jumped to 54.8 in May, up from 51.3 in April and above the market estimate of 51.3. This was the highest level in a year and pointed to improving business activity despite high interest rates. Manufacturing remains weak but the PMI rose from 50.0 to 50.9, which shows very modest growth. The 50 level separates contraction from expansion.

GBP/USD Technical

GBP/USD is testing resistance at 1.2710. Above, there is resistance at 1.2736
1.2674 and 1.2648 are the next support levels

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