The pound is up against the dollar considerably since April this year but its performance has been relatively weak compared to its other major trading partners. Since April, the pound has increased by 5.3 percent but the single currency increased by almost 9 percent.
In recent weeks, the hawkish rhetoric from the Bank of England (BoE) has pushed the pound higher against the dollar, while weaker than expected economic dockets have been dragging the pound lower. Numbers from UK real estate sector, as well as manufacturing, have been pretty weak.
The focus for today is on UK retail sales, which was pretty weak last month. The report will be released at 8:30 GMT.
June retail sales preview:
- As said, this report would be vital for the support in the sterling. If the sales remain strong it would be an indication that people are willing to spend money, despite the uncertainties surrounding Brexit. People understand that Brexit would be a long process, hence that shouldn’t affect their purchases immediately but the weakening of the pound likely to add to the cost.
- However, there is a saying that, when Britons are happy, they shop, but when they are sad, upset or tense they shop more. Retail sales figures, released since the Brexit referendum support this saying.
- After the crisis of 2008/09, the retail sales started to recover and the growth rate reached a level much higher than it was before the crisis. In August last year, retail sales growth reached 6.6 percent. Compared to that, September was weaker with 4.1 percent y/y growth. In October, retail sales hit the highest level of growth for the year 2016 to 7.4 percent.
- However, reports released this week suggests that the growth has been much weaker this year. In the month of May, yearly growth in retail sales declined to just 0.9 percent, the lowest level since March 2013.
Expectations today:
- UK retail sales are expected to grow by 2.5 percent y/y in June and by 0.4 percent on a monthly basis.
The pound is currently testing a key downtrend line that began back in 2014. As of now, we at FxWirePro don’t believe a breakout is likely. Instead, we remain bearish on the pound.
