It continues to be a quiet week for the British pound. That could change on Friday, with the markets bracing for more bad news from retail sales data for May. Headline retail sales is expected at -4.5%, after an April reading of -.4.9%. Core retail sales are expected to decline by 5.1%, following a -6.1% reading in April.
Weak retail sales numbers should not come as a surprise, with UK consumers hammered by surging inflation and grappling with a worsening cost of living crisis. There was no relief (not that any was expected) from yesterday’s inflation report. Headline CPI rose to 9.1% in May, a notch higher than the 9.0% reading in April. Inflation expectations are moving higher, and this week’s major rail strike reflects the deep discontent amongst workers who are watching prices soar. The Bank of England isn’t inspiring much confidence, as its recent 0.25% rate hike was a tepid move. The BoE has projected that inflation won’t peak until it tops 11% later this year, which will be cold comfort for UK households.
In the U.S., the Federal Reserve is also in a tough fight with high inflation and delivered a massive 0.75% hike last week in order to slow down inflation. Fed Chair Jerome Powell testified before a Senate committee yesterday and will brief a congressional committee later today. Powell was transparent in his remarks, acknowledging that a recession was “certainly a possibility,” adding that a soft landing would be “very challenging.” Powell mentioned the usual suspects beyond the Fed’s control, namely, high commodity prices, supply chain issues and the Ukraine war. The Fed will have to make some tough decisions regarding future rate hikes, such as whether to deliver further 0.75% hikes, which will help curb inflation but could tip the economy into a recession.
- 1.2187 is providing support, followed by 1.1969
- There is resistance at 1.2283 and 1.2441
GBP/USD Daily Chart.