Strong retail sales likely to limit downside risks to sterling even as dollar rises

The pound has been the top performer over past two weeks, despite the strength in the dollar. The high court’s decision that the government would have to seek parliamentary approval before it can trigger Article 50 has sparked a rally in the pound and any better than expected economic data likely to provide support.

For today, the focus is on retail sales report, for the month of October.

October retail sales preview:

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 understands 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.

After the crisis of 2008/09, the retail sales started to recover and the current growth rate is much higher than it was before the crisis. In August, retail sales growth reached the highest level for 2016 at 6.6 percent. Compared to that, September was weaker at 4.1 percent y/y growth. Today sales growth is expected at 5.3 percent y/y and 5.4 percent excluding fuel.

There is a strong possibility that the pound might rise from the current price of 1.247 against the dollar and test key resistance around 1.275 area. A stronger dollar would certainly be helpful in its quest.