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Sterling under Pressure as Retail Sales Loom

H.S. Borji
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Sterling under Pressure as Retail Sales Loom

The British pound weakened Wednesday after the minutes from the Bank of England’s July meeting showed officials still favoured loose monetary policy, as investors looked ahead to Thursday’s retail sales report.

The GBPUSD declined 0.18 percent to 1.7033, rebounding from an intraday low of 1.7024. The pair is supported at 1.7020 and faces resistance at 1.7074.

The minutes of the July Bank of England policy meetings weighed on sterling today, as pound bulls were disappointed to learn all nine members of the Monetary Policy Committee voted to keep interest rates at 0.5 percent and the size of the quantitative easing program at £375 billion.

The data-driven BOE has shifted its focus to wage growth, which continues to drag. Low wage growth is a sign of slack in the labour market, according to the BOE, which could delay a rate hike until next year.

Average wage growth slowed to a record low of 0.7 percent in the three months through May, while inflation stood at more than double that rate.

UK consumer prices accelerated at an annual rate of 1.9 percent in June, the Office for National Statistics reported last week.

Investors are using British data to determine the pace and timing of the first Bank of England rate increase. An improving economy, coupled with hawkish remarks from central bank policymakers including Governor Mark Carney, have increased bets the BOE will raise the cost of borrowing sooner than initially anticipated.

The BOE is widely expected to become the first major central bank to begin raising interest rates. The first rate hike is expected for early 2015, although a minority of speculators says the bank rate could rise as early November of this year.
Sterling was supported ahead of the minutes, as the GBPUSD reached a high of 1.7097.

Sterling climbed to a two-year high against the euro before paring gains later in the day. The EURGBP fell to an intraday low of 0.7875 before rebounding to 0.7902, climbing 0.15 percent. Initial support is likely found at 0.7878 and resistance at 0.7914. The pair is trading well below the 100-day average of 0.8148.

The pound also reached multi-year highs against the Swiss franc, climbing to an intraday high of 1.5435. The pair later pared its gains, declining 0.2 percent to 1.5372. The trend line shows initial support at 1.5349 and resistance at 1.5425.

UK retail sales will make headlines Thursday, giving investors a glimpse of the consumer-led recovery at the start of summer. UK retail revenues are forecast to have rebounded in June after declining 0.5 percent the previous month.

Retail sales excluding fuel are forecast to increase 4.6 percent, following a 4.7 percent increase in May.

UK retail and wholesale sales rebounded in July, according to a separate gauge released today by the Confederation of British Industry. The CBI’s annual sales growth index increased to 21, the highest since April, as consumers increased spending on food, clothing and footwear.

UK retailers said they expect business conditions to improve further in August, with the gauge of expected sales rising from 17 to 36.

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