The UK will print its retail sales report in today’s London trading session and possibly show a 0.5% rebound from the previous 1.5% decline. Analysts are also anticipating an upward revision in the previous figure, as the UK economy has displayed a recovery in the labor market in the past month.
If that’s the case, GBP/USD could carry on with its current uptrend, as it has come off a strong bounce from the rising trend line on the longer-term time frame. This has been helped by recent reports of a rapidly flattening US yield curve, as short-term traders price in a potential Fed rate hike while long-term investors maintain their outlook of weak growth and inflation in the US. In addition, the freshly released Fed bank stress test results showed that five US banks failed the test, including Citigroup.
On the other hand, weak UK retail sales could trigger a sharp selloff for the pound as it would put the BOE farther from implementing an interest rate hike or tightening monetary policy. Recall that market participants thought that the BOE was ready to remove stimulus after the UK economy posted one strong report after another, but this upbeat outlook was dampened when inflation reports started showing weak spots.
Retail Sales Forecasts
According to a retail sales leading indicator released by CBI earlier this month, consumer spending may have still lagged for the month. The report triggered a GBP/USD decline as the index slipped to its lowest level since November. Components of the report showed that sales in department stores fell while grocery sales increased.
A weak reading or a negative one could undo the pound’s gains, as it might hint of weaker than expected GDP later on. This could push GBP/USD below the long-term trend line or at least trigger another test. On the other hand, a very positive figure with an upward revision in the previous month’s report might yield a rally until the 1.6800 handle.
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