Pound Sterling Rises as UK July Retail Sales Surpass Expectations

• The Pound Sterling strengthens against other currencies following better-than-anticipated UK monthly Retail Sales figures for July.
• UK Retail Sales increased by 0.6% month-on-month, exceeding the projected 0.2% growth.
• Market participants await crucial US Non-Farm Payrolls data for August.

The Pound Sterling (GBP) gains ground against its counterparts on Friday, buoyed by the release of positive United Kingdom (UK) Retail Sales data for July. According to the Office for National Statistics (ONS), Retail Sales, a crucial indicator of consumer spending, unexpectedly grew at a faster rate of 0.6% on a monthly basis, surpassing economists’ expectations of 0.2%. The previous month’s consumer spending measure was revised downward to 0.3% from the initially reported 0.9%.

Year-over-year, Retail Sales data showed a 1.1% increase, falling short of the anticipated 1.3%. However, this growth rate outpaced June’s revised figure of 0.9%, down from the initially reported 1.7%.

The robust UK retail sales figures suggest strong consumer demand, which could potentially influence the Bank of England (BoE) to maintain a restrictive monetary policy stance due to its potential impact on consumer inflation.

Meanwhile, analysts expect the BoE to keep interest rates steady at 4% during this month’s policy meeting, as inflation in the UK continues to show persistence.

BoE Governor Andrew Bailey expressed uncertainty regarding the pace of future interest rate reductions in his address to the House of Commons’ Treasury Committee on Wednesday. Bailey stated, “While I anticipate a downward trajectory for rates, there is significant uncertainty surrounding the speed at which we can implement rate cuts.”

Daily Market Movers: Pound Sterling Strengthens Against US Dollar Ahead of US NFP Report

• The Pound Sterling climbs to around 1.3470 against the US Dollar (USD) during Friday’s European trading session. The GBP/USD pair gains ground as the US Dollar wavers in anticipation of the United States (US) Non-Farm Payrolls (NFP) data for August, scheduled for release at 12:30 GMT.
• Economic forecasters predict US employers added 75K new jobs, closely aligning with July’s 73K figure. The Unemployment Rate is expected to rise to 4.3% from the previous 4.2%. Average Hourly Earnings, a key wage growth indicator, is anticipated to show moderate growth of 3.7%, down from July’s 3.9%, with monthly figures consistently increasing by 0.3%.
• The official employment report is expected to significantly influence the Federal Reserve’s (Fed) monetary policy outlook. Traders increased their dovish expectations for the Fed’s September policy meeting in early August following July’s NFP report, which revealed substantial downward revisions to May and June payroll figures.
• Furthermore, Federal Open Market Committee (FOMC) members have cautioned about growing downside risks to the labor market in light of tariffs announced by the US President.
• The CME FedWatch tool indicates a high probability of the Fed implementing an interest rate cut during the September policy meeting.
• Thursday’s ADP Employment Change report for August also indicated a slowdown in private sector labor demand. Additionally, the ISM Services PMI came in higher at 52.0, surpassing expectations of 51.0 and the previous reading of 50.1.
• Looking ahead, investors will closely monitor the US Supreme Court’s decision regarding tariffs. On Wednesday, the President appealed to the Supreme Court, urging judges to swiftly rule in favor of additional import duties. Recently, an appeals court ruled against the majority of tariffs, deeming them “illegal” and accusing the administration of overstepping its authority.

Technical Analysis: Pound Sterling Hovers Near 20-day EMA

The Pound Sterling approaches 1.3470 against the US Dollar on Friday. However, the GBP/USD pair’s short-term trend remains sideways as it trades close to the 20-day Exponential Moving Average (EMA), currently around 1.3470.

The 14-day Relative Strength Index (RSI) fluctuates within the 40.00-60.00 range, indicating a lateral trend.

On the downside, the August 1 low of 1.3140 serves as a crucial support level. To the upside, the August 14 high near 1.3600 represents a significant resistance barrier.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP), dating back to 886 AD, is the world’s oldest currency and the official tender of the United Kingdom. It ranks as the fourth most traded currency in global foreign exchange (FX) markets, accounting for 12% of all transactions and averaging $630 billion in daily volume, based on 2022 data. Key trading pairs include GBP/USD, known as ‘Cable’, which represents 11% of FX transactions, GBP/JPY, nicknamed the ‘Dragon’ by traders (3%), and EUR/GBP (2%). The Bank of England (BoE) is responsible for issuing the Pound Sterling.

How do Bank of England decisions affect the Pound Sterling?

The most critical factor influencing the Pound Sterling’s value is the monetary policy set by the Bank of England. The BoE bases its decisions on achieving its primary objective of “price stability” – maintaining a steady inflation rate of approximately 2%. Its main tool for accomplishing this is interest rate adjustment. When inflation exceeds the target, the BoE typically raises interest rates to curb spending and borrowing. This action generally strengthens GBP, as higher interest rates make the UK more attractive to global investors. Conversely, when inflation falls below the target, indicating slower economic growth, the BoE may consider lowering interest rates to stimulate borrowing and investment in growth-generating projects.

How does economic data impact the Pound’s value?

Economic indicators play a crucial role in determining the Pound Sterling’s value. Key data releases such as GDP, Manufacturing and Services PMIs, and employment figures can significantly influence GBP’s direction. A robust economy typically supports a stronger Sterling. It not only attracts more foreign investment but may also encourage the BoE to increase interest rates, directly strengthening GBP. Conversely, weak economic data tends to lead to a depreciation of the Pound Sterling.

How does the Trade Balance affect the Pound?

The Trade Balance is another important economic indicator for the Pound Sterling. This metric measures the difference between a country’s export earnings and import expenditures over a specific period. If a country produces highly demanded exports, its currency benefits from increased demand as foreign buyers seek to purchase these goods. Consequently, a positive net Trade Balance tends to strengthen a currency, while a negative balance typically has the opposite effect.