GBP/USD – Pound Dips on Soft UK Retail Sales

The British pound has reversed directions on Thursday, posting slight losses. Early in the North American session, GBP/USD is trading slightly below the 1.32 line. In economic news, British Retail Sales declined by 0.9%, missing expectations. Public Sector Net Borrowing improved to GBP 7.3 billion, beating the estimate. Over in the US, it’s a busy day. Unemployment Claims remained steady at 253 thousand, well below the forecast. The Philly Fed Manufacturing Index disappointed with a decline of 2.9 points. Later in the day, we’ll get a look at Existing Home Sales, with the indicator expected to soften to 5.48 million.

British retail sales is closely monitored, as it is the primary gauge of consumer spending. The indicator came in at -0.9% in June, well off the estimate of -0.4%. The soft reading is another indication of economic fallout from the Brexit vote, in which the British electorate voted  to leave the European Union. Consumer confidence has taken a hit, with GfK Consumer Confidence coming in at -9 points in June, the survey’s sharpest decline since 1994. The post-Brexit economic outlook looks stormy and this was underlined by a new IMF report. The IMF lowered UK growth to 1.7% from 1.9% in the April forecast. The forecast for 2017 is worse, as the April projection of 2.2% has been reduced to just 1.3% on account of Brexit. On Wednesday, the pound dropped after the Moody’s credit agency issued a warning that Britain’s economy could decline if it failed to reach a new trade agreement with Europe.

Is the Federal Reserve leaning more towards a rate hike in 2016? The markets appear to think so, as the chances of a rate hike this year has been priced in at 47%, up from just 20% at the start of July. This positive sentiment is a result of strong retail sales and housing reports over the past week. Another rate hike will be data-dependent, so if key indicators beat expectations, speculation of a rate hike will continue to increase. We’ll hear from the Fed next Wednesday, with the release of a rate statement.

GBP/USD Fundamentals

Thursday (July 21)

• 4:30 British Retail Sales. Estimate -0.4%. Actual -0.9%
• 8:30 British Public Sector Net Borrowing. Estimate 9.3B. Actual 7.3B
• 8:30 US Philly Fed Manufacturing Index. Estimate 5.1. Actual -2.9
• 8:30 US Unemployment Claims. Estimate 271K. Actual 253K
• 9:00 US HPI. Estimate 0.4%
• 10:00 US Existing Home Sales. Estimate 5.48M
• 10:00 US CB Leading Index. Estimate 0.2%
• 10:30 US Natural Gas Storage. Estimate 40B

* Key releases are in bold

*All release times are EDT

GBP/USD for Thursday, July 21, 2016

GBP/USD July 21 at 9:10 GMT

Open: 1.3242 High: 1.3269 Low: 1.3151 Close: 1.3181

GBP/USD Technical

• GBP/USD was flat in the Asian session and has posted considerable losses in the European session. The pair is showing limited movement early in the North American session
• 1.3142 is providing support
• 1.3219 was tested earlier in resistance and remains a weak line

Further levels in both directions:

• Below: 1.3142, 1.3064 and 1.2938
• Above: 1.3219, 1.3349, 1.3513 and 1.3675
• Current range: 1.3142 to 1.3219

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight movement in short positions. Long and short positions are close to an even split, indicative of a lack of trader bias as to what direction GBP/USD will take.

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.