Pound Sterling declines after weak UK Retail Sales report

• The Pound Sterling corrects further against the US Dollar after the release of the weaker-than-expected UK Retail Sales report for June.
• Doubts over the BoE to begin reducing interest rates from August remain afloat.
• The uncertainty over the US Presidential elections improves the safe-haven appeal of the US Dollar.

The Pound Sterling (GBP) extends its correction against majority of its peers in Friday’s London session. The British currency slides further as the United Kingdom (UK) Office for National Statistics (ONS) has reported weaker-than-expected Retail Sales data for June.

The report showed that monthly Retail Sales contracted at a faster pace of 1.2%. Economists estimated a decline by 0.4% against 2.9% growth in May. Annually, receipts at retail stores dipped by 0.2%, which were expected to have grown at a similar pace. Every retailer saw a sharp decline in sales receipts, except those who offers automotive fuel.

The Retail Sales data is a key measure of consumer spending, and a sharp decline in the same suggests that households struggle to bear the burden of higher interest rates by the Bank of England (BoE). However, individuals may not find any relief from higher interest obligations amid uncertainty over BoE rate cuts in August.

BoE officials hesitate to favor a move towards policy normalization due to the sticky US core Consumer Price Index (CPI) amid stubborn inflation in the service sector.

Meanwhile, the expected deceleration in Average Earnings data three-months-ending to May, a key measure to wage growth that prompts service inflation, fails to lift expectations for BoE rate cuts in August as the current pace is still higher what needs to be consistent for taming price pressures.

Daily digest market movers: Pound Sterling drops while US Dollar bounces back

• The Pound Sterling weakens to near 1.2930 against the US Dollar (USD) as the latter rebounds strongly after printing a fresh almost four-month low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back from 103.65 and extends recovery to near 104.30.
• The safe-haven appeal for the US Dollar improves amid growing speculation that United States (US) President Joe Biden could drop his re-election bid. This has prompted upside risks to political uncertainty.
• However, the recovery move in the US Dollar is less-likely to long last as traders see Federal Reserve (Fed) reducing interest rates in September as a done deal. The Fed is also expected to cut borrowing rates twice this year instead of one as signalled by policymakers in the latest dot plot.
• In Friday’s session, policymakers, New York Fed Bank President John Williams and Atlanta Fed Bank President Raphael Bostic are lined-up for speech. Investors will focus on cues about when the Fed will start cutting interest rates.
• Meanwhile, the confidence of Fed officials that inflation has returned to the path of 2% has improved due to slower-than-expected growth in the US inflation and easing labor market conditions. Recent CPI readings from June month report showed that annual headline and core inflation decelerated at a faster-than-expected pace and monthly headline inflation declined for the first time in more than four years.

Technical Analysis: Pound Sterling falls to near 1.2930

The Pound Sterling corrects sharply to near 1.2930 against the US Dollar. The GBP/USD pair weakens as the upside stalls after printing a fresh annual high at 1.3044 on Wednesday. The Cable has formed a Bearish Belt Hold candlestick pattern on a daily timeframe, a move that generally comes after a sharply rally. However, this alone is incapable of confirming a bearish reversal.

Upward-sloping 20-day Exponential Moving Average (EMA) near 1.2850 suggests that the uptrend is intact. The 14-day Relative Strength Index (RSI) declines after turning slightly overbought and is expected to find cushion near 60.00.

On the upside, two-year high near 1.3140 will be a key resistance zone for the Cable. While March 8 high near 1.2900 will be a key support for the Pound Sterling bulls, which used to be a resistance.