GBP/USD Steadies, Eyes UK Retail Sales

02/16/2023

1 minute read

2023.02.16 11:31

MarketPulse

The British pound steadied on Thursday. In the European session, is trading at 1.2053, up 0.25%. This follows a sharp drop of 1.2% a day earlier.

UK inflation continues to fall but remains disturbingly high. Headline inflation fell to 10.1% in January, down from 10.5% in December and below the consensus of 10.3%. The drop in inflation is welcome news, but food prices, a key driver of inflation, surged by 16.8% in January.

With inflation still in double digits, the Bank of England will have to continue raising rates, with the most likely scenario being a 25-basis increase at the Mar. 22 meeting. The market probability of a 25-bp hike rose as high as 73% on Wednesday before dipping to 66% today, according to Refinitiv data.

In the US, delivered an impressive gain of 3% in January, above the estimated 1.8%. This was a strong rebound from the December reading of -1.1% and marked the largest gain since January 2022.

This positive release follows the January report that ticked lower to 6.4% but was higher than expected. These strong numbers translated into strong gains for the US dollar on Wednesday, as the Fed will likely raise rates even higher to put the brakes on the strong economy.

The UK wraps up the week with on Friday. The markets are braced for bad news, with an estimate of -5.5% y/y for the headline figure (-5.8% prior) and -5.3% for the rate (-6.1%). A weak retail sales report could sour investors on the pound and send the currency lower.

GBP/USD Daily Chart