GBP/USD – Pound Moves Higher on Dismal US Retail Sales and Wholesale Prices

The British pound has posted gains in Friday’s North American session. GBP/USD has pushed above the 1.30 line and is currently trading at 1.3010. On the release front, British Construction Output declined 0.9%, missing expectations. It’s been a miserable day for US indicators, as retail sales and PPI reports all missed their estimates. Later in the day, the US releases UoM Consumer Sentiment. UoM Consumer Sentiment is expected to rebound and move back above the 90-level, with an estimate of 91.5 points.

US CPI and retail sales numbers were dismal on Friday. Core Retail Sales dropped 0.3%, while Retail Sales slipped to a flat 0.0%. There was no relief from PPI readings, which measure wholesale prices. PPI came in at -0.4%, and Core PPI declined 0.3%. All four releases missed expectations and were lower than their previous readings. The PPI readings point to ongoing low inflation levels, well below the Federal Reserve’s target of about 2.0%. The Fed next meets in September to decide whether to raise interest rates. A soft GDP report last month had dampened expectations about a rate hike before 2017, but sharp employment numbers, led by a stellar NFP report, had raised the odds of a September hike. However, Friday’s soft numbers will dampen enthusiasm about a rate hike in September, so the Fed may opt to stay on the sidelines until December or even later.

British data in the third quarter continue to disappoint, as Britain’s decision to leave the EU has battered the British economy. Construction Output declined 0.9%, compared to a gain of 0.9%. The indicator has managed only two gains in 2016.The RICS House Balance report climbed just 5% in July, compared to an estimate of 19%. This marked the smallest gain in house prices in over three years. This release comes on the heels of other weak data. NIESR GDP Estimate, a monthly report which helps predict official (quarterly) GDP releases, dropped to 0.3% in July, down from 0.6% a month earlier. As well, Manufacturing Production, a key indicator, declined 0.3%, marking a second straight contraction. Brexit has shaken the financial markets and spooked investors, and the economic fallout, which is just beginning to be measured, is expected to be significant. The BoE is trying to cushion the negative impact of Brexit, and the bank took dramatic action last week, cutting interest rates and expanding asset purchases in an attempt to stabilize the economy. BoE Governor Mark Carney has shown that he is willing to take decisive monetary action in order to bolster the British economy, and further rates cuts could follow prior to the end of the year. Still, there are real fears that Britain could be headed into a recession, and these concerns will increase if third quarter indicators continue to weaken.

GBP/USD Fundamentals

Friday (August 12)

• 4:30 British Construction Output. Estimate 0.9%. Actual -0.9%
• 8:30 US Core Retail Sales. Estimate 0.2%. Actual -0.3%
• 8:30 US PPI. Estimate 0.1%. Actual -0.4%
• 8:30 US Retail Sales. Estimate 0.4%. Actual 0.0%
• 8:30 US Core PPI. Estimate 0.2%. Actual -0.3%
• 9:30 British CB Leading Index
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 91.5
• 10:00 US Business Inventories. Estimate 0.1%
• 10:00 US Preliminary UoM Inflation Expectations

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Friday, August 12, 2016

GBP/USD August 12 at 9:00 GMT

Open: 1.2953 High: 1.3034 Low: 1.2937 Close: 1.3010

GBP/USD Technical

• GBP/USD was flat in the Asian and European sessions. The pair has posted considerable gains in North American trade
• There is resistance at 1.3064
• 1.2938 has strengthened in support following gains by GBP/USD

Further levels in both directions:

• Below: 1.2938, 1.2778 and 1.2680
• Above: 1.3064, 1.3142, 1.3219 and 1.3372
• Current range: 1.2938 to 1.3064

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement on Friday. Currently, long positions command a majority (62%), indicative of trader bias towards GBP/USD continuing to move to higher ground.

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.