The British Pound (GBP) slumped to a six-month low against the US Dollar (USD) on Friday, trading near 1.2550 during London’s session. The decline followed a sharp contraction in the United Kingdom’s (UK) Retail Sales for October, which fell more than expected, underlining weak consumer spending in the country.
Retail Sales, a critical indicator of consumer health, dropped by 0.7% month-on-month in October, reversing a modest 0.1% gain in September, which was itself revised down from 0.3%. Year-on-year, sales rose by only 2.4%, well below the 3.4% market forecast and a downwardly revised 3.2% from September.
The weak sales figures have fueled speculation that the Bank of England (BoE) may cut interest rates in December, reflecting concerns about faltering consumer activity, a major driver of the UK economy. However, traders currently expect the BoE to hold rates steady at 4.75% through both its December and February meetings, given persistently high inflation. October’s inflation data showed services inflation—a key BoE metric—rising to 5%, indicating robust price pressures.
Volatility Looms Ahead of PMI Data and Labour Budget Impact
Market focus now shifts to the flash S&P Global/CIPS Purchasing Managers’ Index (PMI) data, scheduled for release at 09:30 GMT. Analysts anticipate the Composite PMI to remain steady at 51.8, suggesting ongoing expansion in private-sector activity. Investors are also assessing the implications of the Labour Party’s inaugural budget for business sentiment.
US Dollar Gains Add Pressure on Sterling
The Pound’s struggles were compounded by a stronger US Dollar, buoyed by better-than-expected US Initial Jobless Claims data. Claims for the week ending November 15 fell to 213,000, beating forecasts of 220,000 and calming fears over labor market health. However, the report revealed job seekers are taking longer to secure employment.
The US Dollar’s resilience is supported by expectations of a cautious approach to rate cuts by the Federal Reserve (Fed). Markets predict fewer cuts in the current easing cycle, particularly with optimism surrounding President-elect Donald Trump’s pro-growth economic policies. On Thursday, Richmond Fed President Thomas Barkin told the Financial Times that inflationary shocks may pose greater risks now, as companies increasingly pass rising costs onto consumers.
Upcoming Data: US PMI to Offer Fresh Insights
Investors will also watch the preliminary S&P Global PMI data for November, set for release at 14:45 GMT, for indications of economic health and the impact of recent Fed policies.
Technical Analysis: Bearish Outlook Persists for GBP/USD
The GBP/USD pair has extended its decline for a third consecutive day, with all key Exponential Moving Averages (EMA) sloping downward, reflecting a bearish trend.
The 14-day Relative Strength Index (RSI) remains between 20 and 40, signaling strong selling momentum. Immediate support is expected near the May low of 1.2446, while resistance lies at the November 20 high of 1.2720.
Investors are bracing for heightened market volatility as key economic data and geopolitical developments continue to shape currency movements.
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