Near one-month highs: British Pound holds steady despite weak UK Retail Sales data

• 1.3390 keeps GBP/USD broadly unchanged. The pair has edged back from Thursday’s one-month highs above 1.3400.
• September UK Retail Sales substantially undershot forecasts, although the August reading was revised upwards.
• Falling US yields and fading expectations of Fed monetary tightening keep the US Dollar under pressure.

GBP/USD is holding near 1.3390. The British Pound (GBP) is little changed against the US Dollar (USD) on Friday, with the weak retail spending figures published earlier in the day having scant impact. Expectations of an imminent Bank of England interest rate increase are supporting the pair just below Thursday’s monthly high of 1.3419.

September UK Retail Sales contracted by 0.4%, the UK Office for National Statistics reported, a much steeper fall than the 0.1% decline forecast by markets. August’s increase, however, was revised upwards to 0.7% from the initial estimate of 0.5%.

Excluding motor and fuel sales, core Retail Sales declined 0.7% in September, also weaker than the -0.1% market consensus. Both headline and core sales rose 0.8% year-on-year, below their respective consensus forecasts of 1% and 1.5%.

5 November BoE rate hike hopes reinforced by strong inflation

Among major currencies, the Pound has ranked as one of this week’s stronger performers. Wednesday’s elevated UK Consumer Price Index (CPI) reading provided further evidence that high oil prices continue to feed inflation. It also strengthened expectations that the BoE will be compelled to tighten monetary policy at its 5 November meeting.

By contrast, expectations that the Federal Reserve (Fed) will keep interest rates unchanged at next week’s meeting have left the US Dollar under pressure throughout the week. Long-term US yields have also fallen sharply. Mounting fears of an AI bubble have driven investors into the safety of US Government bonds, ultimately reducing pressure on the Fed to tighten monetary policy. 

ING analysts expect foreign exchange markets to “keep a very close watch on the short end of the US curve now.” While noting that “expectations for further Fed tightening have stayed rock-solid at around +75bp over recent weeks,” they caution that “any tech wobble that prompts a dovish re-pricing at the short end could lead to a broader Dollar correction.”