GBP to USD Forecasts: $1.25 in the Hands of UK Retail Sales

Bob Mason
Published: Jan 20, 2023, 00:12 UTC

After a bullish Thursday, UK retail sales figures will round off a busy week for the GBP to USD, with the latest stats suggesting more is needed from the BoE.

GBP to USD 2023 Forecasts - FX Empire

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It is a busy day ahead for the GBP/USD. Following the UK employment and inflation figures on Tuesday and Wednesday, UK retail sales figures for December will be in the spotlight.

With elevated consumer prices and the Bank of England’s monetary policy goals, today’s stats will give investors a sense of how the UK economy wrapped up the year. Economists forecast a 0.4% increase in core retail sales and a 0.5% rise in retail sales that would reverse declines from November.

With the pickup in average earnings and a low UK unemployment rate, strong consumption figures could put more pressure on the Monetary Policy Committee to deliver another hawkish interest rate hike in February.

Considering the influence of this week’s UK economic indicators on the MPC’s monetary policy decision, investors need to monitor chatter with the media. No members are due to speak today.

GBP/USD Price Action

At the time of writing, the Pound was up 0.05% to $1.23937. A mixed start to the day saw the GBP/USD fall to an early low of $1.23846 before rising to a high of $1.23974.

GBP to USD finds early support.
GBPUSD 200123 Daily Chart

Technical Indicators

The Pound needs to avoid the $1.2366 pivot to target the First Major Resistance Level (R1) at $1.2419. A move through the Thursday high of $1.23973 would signal a bullish session. However, the Pound would need risk-on sentiment and better-than-expected retail sales numbers to support a breakout session.

In the event of an extended rally, the GBP to USD would likely test the Second Major Resistance Level (R2) at $1.2450 and resistance at $1.25. The Third Major Resistance Level sits at $1.2535.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2334 into play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.23 and the second Major Support Level (S2) at $1.2281.

The Third Major Support Level (S3) sits at $1.2197.

GBP to USD resistance levels in play above the pivot.
GBPUSD 200123 1 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.22416. The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA ($1.22416) would support a breakout from R1 ($1.2419) to target R2 ($1.2450) and $1.25. However, a fall through S1 ($1.2334) would bring S2 ($1.2281) and the 50-day EMA ($1.22416) into view. A fall through the 50-day EMA would send a bearish signal.

EMAs are bullish.
GBPUSD 200123 4-Hourly Chart

The US Session

It is a quiet day ahead on the US economic calendar, with housing sector data in focus. Elevated mortgage rates and economic uncertainty have weighed on the housing sector. Existing homeowners with pre-COVID-19 fixed mortgage rates remain reluctant to put homes on the market to avoid facing elevated mortgage rates on their new purchases.

However, recessionary jitters and low demand has contributed to a pullback in mortgage rates. The pullback raises the hope of a pickup in activity this year. With investors expecting weak numbers, today’s stats should not impact the GBP/USD.

FOMC member commentary will influence, however. Members Harker and Walker will speak today.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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