GBP/USD Shrugs After Solid UK Retail Sales Report
2023.06.23 10:35
- UK posts better-than-expected retail sales, consumer confidence
- British pound shrugs after BoE’s sharp rate hike
- US to release ISM Services PMI later on Friday
The British pound has edged lower on Friday. In the European session, is trading at 1.2729, down 0.15%. Later today, the US releases ISM Services PMI. The consensus stands at 54.0 for June, following 54.9 in May. The services sector is in good shape and has posted four straight readings over the 50 level, which separates expansion from contraction.
UK retail sales, consumer confidence surprise to the upside
The UK wrapped up the week on a positive note, as retail sales and consumer confidence beat expectations. Retail sales for May rose 0.3% m/m, beating the consensus of -0.2%. This follows a 0.5% gain in April. Core retail sales managed a 0.1% gain, down from 0.7% in May but above the consensus of -0.3%.
GfK consumer confidence improved to -24 in June, up from -27 in May and higher than the consensus of -26. Consumer confidence remains deep in negative territory but has risen for five straight months and hit its highest level since January 2022.
These readings indicate that the UK consumer is slightly less pessimistic about difficult economic conditions and consumer spending remains resilient despite sticky inflation.
BoE delivers massive rate hike, pound shrugs
There was little doubt that the Bank of England would hike rates on Thursday, with the only question being the extent of the increase. The markets had priced in a rate hike of 50 or 25 basis points at around 50/50, which made for a dramatic lead-up to the rate announcement. In the end, the central bank pressed hard on the brakes and raised rates by 50 bp, bringing the Bank Rate to an even 5%. The British pound spiked higher after the decision but quickly reversed directions and ended the day little changed. It was somewhat of a surprise that the pound wasn’t able to consolidate its gains after the oversized rate hike.
The Bank of England hasn’t made much progress in its battle with inflation. This week’s inflation report was a huge disappointment, as core CPI rose to 7.1%, a 31-year high. The BoE is counting on larger hikes, such as the 0.50% increase on Thursday, to push inflation significantly lower. There are expectations that the BoE will have to administer further large rate hikes and the peak rate could reach as high as 6%. This could tip the economy into a recession, but the BoE has little choice but to keep tightening in order to subdue inflation.
GBP/USD Technical
- GBP/USD tested support at 1.2719 earlier today. The next support level is 1.2645
- There is resistance at 1.2848 and 1.2950
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