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Cable Holds Ground Following Mixed Retail Sales Data

H.S. Borji
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Cable Holds Ground Following Mixed Retail Sales Data

The British pound was little changed against the US dollar on Thursday, as investors shrugged off mixed UK retail sales figures following news the Bank of England was divided on how to proceed with monetary policy.

The GBPUSD was trading at 1.6590, little changed from the previous close of 1.6595. The pair rebounded from an intraday low of 1.6564, but is still pacing for a weekly decline of 0.8 percent. The daily chart shows initial support likely found at 1.6564 and resistance at 1.6654.

Cable is trading more than 300 pips below its long-run average of 1.6883. The pair has tumbled 3.3 percent since July 1.

The pound weakened against the euro, as the EURGBP re-took the psychological 80.0 level. The pair advanced 0.23 percent to 80.08. Initial support is likely found at 0.7966 and resistance at 0.8016.

The pound was virtually unchanged against the Japanese yen, as the GBPJPY traded at 172.18. The pair faces initial support at 171.33 and resistance at 172.69.

The pound-to-franc exchange rate tumbled 0.25 percent, sending the GBPCHF to 1.5120. The pair faces initial support at 1.5113 and resistance at 1.5191.

In economic data, UK retail sales growth fell to its lowest level in eight months, raising concerns the consumer-led recovery may be cooling.

Retail sales advanced just 0.1 percent in July, following a gain of 0.2 percent the previous month, the Office for National Statistics reported today. Economists forecast retail sales to rebound 0.4 percent.

Compared to July 2013, retail sales were up 2.6 percent, down from 3.4 percent in June.

Stripping away fuel, retail sales were up 0.5 percent, after declining 0.1 percent in June. Economists forecast an increase of 0.4 percent.

The pound weakened slightly against the dollar following the news before consolidating higher later on in the day.

Today’s data suggest the UK’s rapid expansion was slowing, and that persistently weak wage growth was finally starting to catch up with consumers. The Bank of England recently cut its wage growth forecast for the year to 1.25 percent and effectively ruled out the possibility of an early rate hike.

Still, the pound was supported on Wednesday after the minutes of the August Monetary Policy Committee meetings revealed the first split vote on interest rates in more than three years. MPC members Martin Weale and Ian McCafferty, who voted to raise the Bank rate by 25 basis points, believed recent declines in unemployment would eventually translate into higher wage growth. According to the two members, the economy was operating close to full capacity, which warrants a rate hike at this time.

The 7-2 split vote ended the longest period of unanimity in the Monetary Policy Committee’s 14-year history.

Speculation that the BOE may be warming to the idea of higher interest rates probably isn’t enough to inspire a dramatic rebound for cable, which is unlikely to trade at multi-year highs for the rest of the year. Cable topped out at 1.7161 in early July. The pound-to-US dollar exchange rate has been in free-fall ever since.

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