British pound dips ahead of retail sales

The British pound has edged lower in the Thursday session. GBP/USD is currently trading at 1.3469, down 0.16% on the day.

Will BoE make the move?

We’re hearing the phrase ‘transient inflation’ less and less, as inflation continues to accelerate. The UK consumer price index hit 4.2% y/y in October, above the consensus of 3.9%. The data will add to the pressure on the BoE to raise interest rates at the December policy meeting. The bank held rates at the November meeting, which caused shock waves in the markets, as Governor Andrew Bailey had sent strong hints that the bank would raise rates in order to contain inflation. The BoE is projecting inflation to go as high as 5% in early 2022 before falling lower in 2023. After being burned by the BoE, investors will be mindful about projecting a December rate hike, but it’s clear to everyone that the bank will need to raise rates shortly – if not in December, then early in the New Year.

It has been a busy data calendar this week, with the UK releasing employment and inflation data. Next up is the release of October retail sales on Friday, with the markets bracing for a headline reading of -2.0% y/y, compared to -1.1% a month earlier. A second straight decline could weigh on the pound, which is trying to post its first winning week in a month.

Inflation has also been running high in the US, but that hasn’t put a damper on consumer spending, as retail sales climbed 1.7% in October, up from 0.7% beforehand. Core retail sales showed an identical gain, up from 0.8%. There is a growing concern in the markets that the Fed will have to respond to the surge in inflation, as the argument that inflation is transient is looking out of touch with the realities on the ground. If the Fed decides to accelerate its taper, we could see some volatility in the financial markets.

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GBP/USD Technical Analysis

• GBP/USD has support at 1.3310. Below, there is support at 1.3206
• There is resistance at 1.3562 and 1.3710

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