GBP/USD – Pound Shrugs Off Strong UK Retail Sales Report

GBP/USD is unchanged in the Tuesday session. In North American trade, GBP/USD is trading at 1.2940. On the release front, British BRC Retail Sales Monitor impressed with a gain of 5.6 percent. Over in the US, there was another strong employment report, as JOLTS Jobs Openings remained unchanged at 5.74 million, above the estimate of 5.67 million.

There was good news on the consumer spending front in the UK, as retail sales in BRC stores jumped 5.6% compared to a year ago. The sharp increase underscores that consumer spending remains resilient, but there are growing concerns that this trend will change in 2017. Analysts point to two major areas of concern. First, the weak British pound means that consumer purchasing power has decreased, since imported goods have become more expensive. Second, the triggering of Article 50 and the upcoming negotiations with the EU over Brexit is causing uncertainty about the economy and jobs, and this means that consumers will be holding back on buying major items. If consumer spending, a key driver of economic growth, weakens, the pound could follow suit and lose ground.

With the US posting strong employment numbers in April, it’s a good bet that the Federal Reserve will raise rates at the June policy meeting. Nonfarm Payrolls improved to 211 thousand, easily beating the forecast of 194 thousand. The unemployment rate fell to an impressive 4.4%, compared to the estimate of 4.6%. This was the lowest rate since May 2007. Wage growth remained weak at 0.3%, but still matched the forecast. Still, with such little slack in the labor markets, we should see wage growth start to move higher. If that happens sooner rather than later, the Fed could raise rates three more times in 2017. As things stand now, two more moves is the likely scenario. The strong job numbers have cemented a rate hike in June, as the odds of a June hike continue to rise and are currently at 87%, according to the CME Group.

GBP/USD Fundamentals

Monday (May 8)

• 19:01 British BRC Retail Sales Monitor. Actual 5.6%

Tuesday (May 9)

• 6:00 US NFIB Small Business Index. Estimate 104.0. Actual 104.5
• 10:00 US JOLTS Job Openings. Estimate 5.67M. Actual 5.74M
• 10:00 US Final Wholesale Inventories. Estimate -0.1%. Actual +0.2%
• 10:00 US IBD/TIPP Economic Optimism. Estimate 52.3. Actual 51.3
• 16:15 US FOMC Member Robert Kaplan Speaks

*All release times are EDT

*Key events are in bold

GBP/USD for Tuesday, May 9, 2017

GBP/USD May 9 at 11:40 EDT

Open: 1.2940 High: 1.2961 Low: 1.2902 Close: 1.2935

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted losses in European trade but has recovered in North American session
• 1.2865 is providing support
• 1.2946 was tested earlier and remains a weak line

Further levels in both directions:

• Below: 1.2865, 1.2706, 1.2571 and 1.2471
• Above: 1.2946, 1.3058 and 1.3121
• Current range: 1.2865 to 1.2946

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, short positions have a majority (64%), indicative of trader bias towards GBP/USD breaking out and moving lower.

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.