Key Talking Points:
- GBP/USD unable to keep bullish momentum going
- Retail sales rise in June as social spending increases with Euro 2020
GBP/USD has not been able to follow through on the two-day bounce from recent lows despite a good reading for retail sales out this morning. The pair had managed to bounce off the 23.6% Fibonacci retracement level (1.3577) on Tuesday after a risk-off move saw the pair hit its lowest level in 5 months as the US Dollar was picking up safe-haven demand.
GBP/USD Daily Chart
The latest reading out this morning saw retail sales grow 0.5% in the month of June, above expectations of 0.4% and a big improvement from May’s unexpected 1.4% drop. The yearly figure is also 0.1% above expectations coming in at 9.7% but core retails sales missed analyst estimates, suggesting that energy and food sales were one of the main drivers in June, which would fall in line with the hospitality sector reopening and the increase in outdoor consumption due to the EURO 2020 football championship.
But concerns about the rise in new Covid-19 variants and a possible new wave of infections may knock consumer confidence going forward, which could dampen retail sales in the next few weeks. This is also translating into markets as investors remain cautious about the extent of the current economic recovery given a rebound in new cases in many parts of the world, despite ongoing successful vaccination campaigns.
This likely means that we’ll continue to see GBP/USD trading sideways with a negative tilt as US Dollar repositioning points at stronger flows in the coming weeks. If sentiment continues to drag, the pair may drop below 1.36 once again, with a clear chance for sellers to bring it down further towards 1.34, albeit any further weakness is likely to be transitory. On the upside, 1.38 is likely to be an area where price pressures converge so achieving a significant break higher will likely be tricky.
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin