GBP/USD – Pound Can’t Capitalize on Stellar Retail Sales Growth

GBP/USD has posted slight losses on Tuesday, continuing the downward trend which marked the Monday session. Currently, the pair is trading at 1.2330. On the release front, British CBI Realized Sales, which measure retail sales volumes, surged to 35 points in December, well above the forecast of 20 points. There are no US releases on the schedule.

The pound continues to struggle and is currently trading at 4-week lows. The currency has slipped 2.6% since the Fed hike last week, and failed to take advantage of an excellent reading from CBI Realized Sales, which jumped to 35 points. This marked the fastest pace of retail sales growth since September 2015. Last week, Retail Sales posted a weak gain of 0.2%, well off the previous reading of 1.9%.

December seems to be that special time of year for the Federal Reserve. When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

GBP/USD Fundamentals

Tuesday (December 20)

• 6:00 British CBI Realized Sales. Actual 35 points

*All release times are EST

* Key events are in bold

GBP/USD for Tuesday, December 20, 2016

GBP/USD December 20 at 9:50 EST

Open: 1.2386 High: 1.2409 Low: 1.2310 Close: 1.2331

GBP/USD Technical

• GBP/USD was flat in the Asian session and then posted losses in European trade. The pair is flat in the North American session
• 1.2272 is providing support
• 1.2351 has switched to resistance following losses from GBP/USD. This lines remains fluid

Further levels in both directions:

• Below: 1.2272, 1.2111 and 1.1943
• Above: 1.2351, 1.2471, 1.2620 and 1.2778
• Current range: 1.2272 to 1.2351

OANDA’s Open Positions Ratio

GBP/USD ratio remains unchanged this week. Currently, long positions have a majority (57%), indicative of trader bias towards GBP/USD reversing directions and moving upwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.