Short-Term Pound Weakness Persists
On Friday, the British pound (GBP) strengthened against rival currencies following better-than-expected retail sales data for July. The UK’s Office for National Statistics (ONS) reported a 0.6% monthly increase in retail sales, surpassing forecasts of 0.2%. This marks a notable rebound from June’s revised 0.3% growth (originally reported as 0.9%).
On an annual basis, retail sales rose by 1.1%, slightly below analysts’ expectations of 1.3%, but still above June’s revised 0.9% gain (previously 1.7%).
The rise in retail sales signals strong consumer demand in the UK, which could prompt the Bank of England (BoE) to maintain its tight monetary stance, as elevated demand may fuel inflationary pressures.
Currently, the BoE is expected to keep interest rates at 4%, given persistent inflationary challenges in the UK.
BoE Governor Andrew Bailey, speaking before the Treasury Committee in Parliament on Wednesday, expressed caution about the pace of rate cuts. He stated: “The path of rates is likely downward, but there is considerable uncertainty about the speed of adjustment.”
During Friday’s European session, the GBP/USD pair climbed toward 1.3470. Meanwhile, the U.S. dollar remained volatile ahead of the August Nonfarm Payrolls (NFP) report.
Forecasts suggest the U.S. economy added around 75,000 jobs in August, nearly matching July’s figure of 73,000. The unemployment rate is expected to rise from 4.2% to 4.3%. Average hourly earnings growth is projected at 3.7%, down from 3.9% in July.
These figures could significantly influence the Federal Reserve’s monetary policy outlook. Following July’s weak NFP report and downward revisions to May and June data, traders have increased expectations for a rate cut at the September meeting.
Members of the Federal Open Market Committee (FOMC) have also warned of downside risks in the labor market, particularly in response to tariffs announced by the President of the United States.
The CME Group’s FedWatch tool shows markets are pricing in a rate cut with high certainty for September.
Meanwhile, the ADP report for August indicated weakening demand in the private labor market. The ISM Services PMI came in at 52.0, above both the forecast of 51.0 and the previous reading of 50.1.
Investors are also awaiting the U.S. Supreme Court’s ruling on the President’s tariff policies. On Wednesday, the President of the United States escalated the tariff case from the appellate court to the Supreme Court, requesting an expedited review. The appellate court recently deemed many of the tariffs “unlawful” and accused the President of abusing executive power.
The British pound has risen to 1.3470 against the U.S. dollar, but the short-term trend for GBP/USD remains neutral, as the pair hovers near the 20-day Exponential Moving Average (EMA20).
The 14-day Relative Strength Index (RSI) is fluctuating between 40 and 60, indicating a sideways trend.
If the price declines, the August 1 low at 1.3140 will act as initial support. On the upside, the August 14 high near 1.3600 is seen as a key resistance level.