The Pound Sterling (GBP) is experiencing a significant decline against major currencies during Friday’s London session. This downturn follows weaker-than-expected UK retail sales data for June, which showed a steeper contraction of 1.2% compared to the 0.4% decline forecast.
The sharp drop in retail sales, a key indicator of consumer spending, suggests that households are struggling with the impact of higher interest rates set by the Bank of England (BoE). However, any relief from elevated interest rates seems uncertain amidst doubts about the BoE’s potential rate cuts in August.
BoE officials are hesitant to shift towards policy normalization due to persistent core inflation, particularly in the service sector. Despite expectations of slower wage growth, a major driver of service inflation, the current pace remains above levels necessary to curb price pressures, dampening hopes for rate cuts in August.
Meanwhile, the US Dollar has rebounded strongly, reaching near 104.30, as political uncertainty in the US rises due to speculation about President Joe Biden’s potential withdrawal from the re-election race. However, the Dollar’s recovery may be short-lived as traders anticipate interest rate cuts by the Federal Reserve in September. Investors are now focusing on speeches by Fed officials John Williams and Raphael Bostic for clues on the timing of these rate cuts, as the Fed’s confidence in achieving its 2% inflation target grows.
Technically, the GBP/USD pair has formed a Bearish Belt Hold candlestick pattern after hitting a new annual high, signaling a potential trend reversal. However, the upward-sloping 20-day EMA suggests the uptrend may still be intact. The RSI has declined but is expected to find support near 60.00. Key resistance for the Pound Sterling lies near the two-year high of 1.3140, while support is expected around the March 8 high of 1.2900.
