When are the UK Retail Sales and how could they affect GBP/USD?
The UK Retail Sales Overview
The United Kingdom (UK) docket has the Retail Sales data to be released by the Office for National Statistics (ONS) on Friday, later this session at 06:00 GMT.
UK Retail Sales are expected to increase by 0.4% month-over-month (MoM) in August, compared to a 0.6% increase seen in July. On an annualized basis, Retail Sales are seen rising 0.6% during the reported month, down from 1.1% prior.
Core Retail Sales, stripping the basket of motor fuel sales, are anticipated to have climbed by 0.3% MoM and by 0.8% year-over-year (YoY), lower than the previous readings of 0.5% and 1.3%, respectively.
How could the UK Retail Sales affect GBP/USD?
Upcoming UK Retail Sales data could weigh on the GBP/USD pair amid signs of softer consumer spending. The Pound Sterling is already facing challenges after the Bank of England (BoE) decided to keep interest rates steady at 4%, as expected, with a 7-2 majority.
The GBP/USD pair holds ground near 1.3550 after registering more than 0.5% losses in the previous session. However, the pair may further depreciate as the US Dollar (USD) remains stronger after the Federal Reserve (Fed) delivered an expected rate cut on Wednesday but signaled no rush to lower borrowing costs quickly in the coming months.
Technically, the GBP/USD pair may target the initial barrier at the nine-day Exponential Moving Average (EMA) of 1.3567. A break above this level could improve the short-term price momentum and support the pair to explore the region around the two-month high at 1.3726. On the downside, the primary support lies at the psychological level of 1.3500, aligned with the 50-day EMA of 1.3496.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.