Pound Sterling attempts to gain ground after UK Retail Sales data

• The Pound Sterling finds cushion after the release of the UK Retail Sales data for November, even though growth was lower than anticipated.
• A higher number of BoE officials voted for an interest rate cut on Thursday, boosting dovish bets for 2025.
• Investors await the US PCE inflation data for November for fresh Fed interest rate cues.

The Pound Sterling (GBP) attempts to recover against its major peers on Friday after the release of the United Kingdom (UK) Retail Sales data for November, which rose less than anticipated. The Retail Sales data, a key measure of consumer spending, rose by 0.2% in the month, slower than estimates of 0.5% but recovering from a 0.7% decline in October.

Retail Sales grew at a moderate pace of 0.5% year over year, against expectations of 0.8% and the former release of 2%, which was downwardly revised from 2.4%. The report showed that clothing demand remained weak, while sales were higher at other non-food stores.

The UK Office for National Statistics (ONS) reported that the impact of the Black Friday sale was not taken into account in the November data as it commenced on November 29. The agency covered data for four weeks, from October 27 to November 23.

On a broader note, the outlook of the British currency is uncertain as the Bank of England (BoE) monetary policy meeting on Thursday showed a dovish buildup on the policy outlook. The BoE left its key borrowing rates unchanged at 4.75%, as expected, as UK inflation has accelerated in the last three months. Still, three policymakers proposed cutting interest rates against one as anticipated by market participants.

BoE Governor Andrew Bailey refrained from committing a pre-defined rate cut path. “Due to heightened uncertainty in the economy, we can't commit to when or by how much we will cut rates in 2025,” he said.

Meanwhile, traders price in a 53 basis points (bps) interest rate reduction by the BoE in 2025 after the policy announcement.

Daily digest market movers: Pound Sterling posts fresh seven-month low against USD

• The Pound Sterling rebounds after posting a fresh seven-month low near 1.2470 against the US Dollar (USD) on Friday. The GBP/USD pair recovers slightly as the US Dollar Index (DXY) gives up intraday gains after refreshing a two-year high around 108.50 ahead of the United States (US) Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.
• Investors will pay close attention to PCE inflation as Federal Reserve (Fed) officials have become more worried about stalling progress in disinflation than downside risks to employment. The US core PCE inflation, the Fed’s preferred inflation gauge, is estimated to have grown at a faster pace of 2.9% from 2.8% in October. Month over month, the underlying inflation data is expected to have risen by 0.2% compared to 0.3% in October.
• The outlook for the US Dollar has strengthened. In the policy meeting on Wednesday, the Fed cut key borrowing rates by 25 basis points (bps) to the 4.25%-4.50% range as expected but guided a slower rate-cut trajectory for 2025. The Fed’s dot plot showed that officials collectively see federal fund rates heading to 3.9% by 2025, up from the 3.4% projected in September.
• The Fed signaled fewer rate cuts for the next year as officials are confident in strong economic growth. This forced them to be cautious about further policy easing. Meanwhile, the third estimate for Q3 Gross Domestic Product (GDP) came in higher at 3.1% compared to the second estimate of 2.8%.

Technical Analysis: Pound Sterling weakens on death cross formation

The Pound Sterling weakens against the US Dollar on a decisive break below the upward-sloping trendline around 1.2600, which is plotted from the October 2023 low of 1.2035.

A death cross, represented by the 50-day and 200-day Exponential Moving Averages (EMAs) near 1.2790, suggests a strong bearish trend in the long run.

The 14-day Relative Strength Index (RSI) slides below 40.00, suggesting that a fresh downside momentum has been triggered.

Looking down, the pair is expected to find a cushion near the April 22 low around 1.2300. On the upside, the December 17 high at 1.2730 will act as key resistance.