GBPUSD Breaks Below 1.26 As UK Retail Sales Fall

GBPUSD made a steep reversal in October and fell to 1.26, which held as support, however, this level has been broken now, opening the way for this year’s low at 1.23.

Since early October, the GBP/USD pair has faced strong selling pressure, driven by the Federal Reserve’s hawkish stance and lackluster UK economic data. Over this period, the pair has declined by 8.5 cents, reaching the 1.26 level last week as persistent USD strength dominated the market. Support near 1.26 proved resilient, allowing a brief recovery of one cent. However, the 200-day Simple Moving Average (SMA) acted as a ceiling, rejecting the price and pushing it back below 1.26 after a renewed advance in the USD.

GBP/USD Chart Daily – The 200 SMA Rejected the Price

This week, UK inflation data for October revealed monthly increases of 0.6% in consumer prices and 0.4% in core prices, both exceeding expectations of 0.3% and 0.5%, respectively. Despite these higher-than-expected figures, the Bank of England attributed the rise to a one-off event, maintaining its current interest rate stance. The focus remained on core annual inflation, which surpassed forecasts as well as the previous month’s reading.

During the Bank of England Hearings, officials expressed cautious optimism that inflation might cool faster than previously anticipated, despite lingering concerns over wage pressures. They hinted at the possibility of gradual rate cuts totaling around 100 basis points over the next year, contingent on upcoming economic data. While markets welcomed this outlook, uncertainty surrounding the pair’s direction remains, as traders weigh the impacts of tightening US monetary policy against a potential easing bias from the BOE.

UK Retail Sales for October Released by ONS – 22 November 2024

• Retail Sales (Including Autos and Fuel):
  • Month-over-Month (M/M): -0.7% (vs. -0.3% expected, prior revised to +0.1% from +0.3%).
  • Year-over-Year (Y/Y): +2.4% (vs. +3.4% expected, prior revised to +3.2% from +3.9%).
• Retail Sales (Excluding Autos and Fuel):
  • Month-over-Month (M/M): -0.9% (vs. -0.4% expected, prior revised to +0.1% from +0.3%).
  • Year-over-Year (Y/Y): +2.0% (vs. +3.3% expected, prior revised to +3.2% from +4.0%).

UK retail sales declined more than expected last month, accompanied by a downward revision to September’s figures. This underwhelming performance paints a challenging picture for the retail sector heading into the holiday season. The data highlights the ongoing sluggishness in retail activity compared to 2022. To provide some context, retail sales volumes in October 2024 remain 1.5% below their levels in February 2020, prior to the onset of the COVID-19 pandemic.

GBP/USD Live Chart