Pound rises on strong UK retail sales

The British pound has extended its gains on Friday. In the European session, GBP/USD is trading at 1.3046, up 0.27% on the day.

UK retail sales stronger than expected

UK retail sales are moving in the right direction. Retail sales increased for a third straight month in September, rising 0.3% m/m. That was lower than the 1% increase in August but beat the market estimate of -0.3%. Annually, retail sales climbed 3.9%, up from a revised 2.3% in August and higher than the market estimate of 3.2%. This was the largest annual rise since February 2022.

The positive retail sales report will be welcome news for the government, with Finance Minister Reeves presenting the Annual budget on Oct. 30. Reeves has warned that the budget will contain “tough measures” and is expected to include spending cuts and tax hikes. Consumers have cut back on discretionary items and a tough budget would likely dampen consumer spending.

In the US, retail sales showed a solid gain in September, helped by lower gasoline prices. Retail sales jumped 0.4%, above the 0.1% gain in August and the market estimate of 0.3%. Annually, retail sales eased to 1.7%, below the revised 2.2% gain in August but above the forecast of 1.6%.

The strong September data is a positive sign that third-quarterly growth was solid, which will support the case for the Fed to deliver quarter-point cuts in November and December. The Federal Reserve chopped rates by 50-bps in September but the jumbo rate cut is expected to be a one-time move, barring a sudden deterioration in economic data.

GBP/USD Technical

• GBP/USD is testing resistance at 1.3016. The next resistance line in 1.3076
• 1.2963 and 1.2903 are the next support levels

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