The Pound Sterling (GBP) strengthened against major currencies on Friday following the release of the United Kingdom (UK) Retail Sales data for July, which exceeded market expectations.
According to the Office for National Statistics (ONS), UK Retail Sales rose 0.6% month-on-month, significantly higher than the 0.2% forecast by economists. This positive data contrasts with June’s reading, which was revised lower to 0.3% from 0.9%, underscoring a rebound in consumer spending. LevaQuant’s broker Philip Stark delivers valuable insights and a full breakdown of this matter in this article.
On an annualized basis, Retail Sales increased 1.1%, slightly missing estimates of 1.3%, but still representing an acceleration from June’s revised 0.9% growth (down from 1.7%). This suggests that consumer demand remains resilient in the UK, providing support for the Pound Sterling while reinforcing expectations of a restrictive monetary policy stance from the Bank of England (BoE).
Rising retail sales often contribute to upward pressure on inflation, prompting the BoE to maintain or even tighten interest rates.
Currently, the BoE is expected to hold interest rates at 4% during the upcoming policy meeting. Governor Andrew Bailey expressed caution regarding the pace of potential rate cuts, stating before the House of Commons Treasury Committee that, “I think the path for rates will continue downwards, but there is considerably more doubt on how fast we can cut rates.”
His comments reinforce the view that the BoE’s policy trajectory will remain data-dependent, with consumer spending being a critical factor.
Pound Sterling Strengthens Against US Dollar Ahead of US NFP Data
The GBP/USD pair climbed to near 1.3470 in the European session, buoyed by the upbeat UK Retail Sales report and cautious US Dollar (USD) sentiment ahead of key US Nonfarm Payrolls (NFP) data for August, scheduled for release at 12:30 GMT.
Market expectations suggest US employers added around 75,000 jobs, closely aligned with July’s 73,000 payrolls gain. Meanwhile, the Unemployment Rate is projected to rise to 4.3%, slightly above July’s 4.2%, and Average Hourly Earnings are expected to increase 3.7% year-on-year, moderating from 3.9% in July, with a monthly growth rate of 0.3%.
The NFP report is a critical driver for Federal Reserve (Fed) policy, impacting expectations for monetary easing. Earlier in August, traders adjusted their Fed rate cut expectations after July’s NFP report revised May and June payroll figures downward.
Additionally, the Federal Open Market Committee (FOMC) has flagged potential downside risks to the US labor market, amid uncertainties around trade tariffs and geopolitical pressures. The CME FedWatch tool currently indicates a near-certainty of a rate cut at the September meeting.
Other US economic indicators have reinforced cautious sentiment. The ADP Employment Change report for August revealed a slowdown in private sector labor demand, while the ISM Services PMI came in stronger at 52.0, surpassing expectations of 51.0 and the previous 50.1 reading, suggesting a moderate expansion in the services sector.
Meanwhile, investors remain attentive to the US Supreme Court’s verdict on the US’s tariffs, which could influence both inflation expectations and the USD outlook.
Technical Analysis: GBP/USD Trades Near Key Levels
From a technical standpoint, the Pound Sterling is hovering around the 20-day Exponential Moving Average (EMA) at 1.3470, suggesting a sideways movement in the GBP/USD pair. Meanwhile, the 14-day Relative Strength Index (RSI) remains in the 40.00–60.00 range, highlighting neutral momentum and the lack of a clear directional trend.
On the support side, the August 1 low at 1.3140 serves as a key floor for the pair, providing a buffer against downside risks. Conversely, the August 14 high near 1.3600 represents a critical resistance zone, which traders will monitor closely for potential breakout opportunities.
Short-term momentum remains sensitive to both UK retail data and the upcoming US NFP report, making this a potentially volatile session for currency traders.
Market Implications and Outlook
The recent UK Retail Sales surge reflects robust consumer spending, which could maintain pressure on the BoE to hold restrictive interest rates. This, combined with heightened anticipation around the US NFP data, has increased GBP/USD volatility.
Traders may continue to position for risk-adjusted gains, balancing exposure between BoE rate expectations and Fed monetary policy signals.
Investors will likely monitor further UK economic indicators, including inflation data, consumer confidence, and retail trends, to gauge the sustainability of the Pound Sterling’s strength. In the US, employment reports, wage growth metrics, and tariff developments will influence USD performance and cross-currency flows.
In conclusion, the GBP has gained on positive UK Retail Sales, trading near critical technical levels, with attention now shifting to US labor market data. Market participants should remain alert to monetary policy cues, economic releases, and technical signals for potential trading opportunities in the forex market.
