GBP to USD Forecasts: UK Retail Sector Survey Forecast to Signal Improving Demand

Highlights

• The GBP/USD rose by 0.50% on Friday, ending the session at $1.25946.
• BoE Chief Economist Huw Pill and recent UK economic indicators delivered a positive end to the week.
• UK retail sector figures and the US economic calendar are focal points on Monday.

The Friday GBP/USD Overview

On Friday, the GBP/USD rose by 0.50%. Following a 0.31% gain on Thursday, the GBP/USD ended the day at $1.25946. The GBP/USD fell to a low of $1.25245 before rising to a Friday high of $1.26153.

UK Retail Sector in Focus

On Monday, the UK retail sector will be in focus. November UK CBI Distributive Trades Survey (DTS) numbers will draw investor interest. Recent service sector data eased fears of a UK recession, supporting more hawkish bets on the Bank of England rate path.

A larger-than-expected rise in DTS numbers could support bets on the BoE cutting rates after H1 2024. The DTS compiles responses from 150 retail and wholesale firms. As a leading indicator of consumer spending, an upswing could fuel demand-driven inflationary pressures.

A positive outlook on consumption could also force the BoE to leave rates higher for longer to curb spending. A more hawkish rate path maintains elevated borrowing costs, impacting disposable income and consumer spending. Economists forecast the DTS to rise from -36 to -30.

US Housing and Manufacturing Sectors in Focus

On Monday, the US economic calendar needs consideration. New home sales and Dallas Fed Manufacturing Index numbers will be in focus. The US housing sector is a litmus test of the US economy. A slump in housing sector activity could affect house prices and consumer confidence. Waning consumer confidence would signal a negative consumption outlook.

A weaker consumption outlook would support bets on a May Fed rate cut. However, US private consumption contributes over 60% to the economy. A weaker outlook could reignite fears of a hard landing.

The US manufacturing sector accounts for less than 30% of the US economy. However, the US dollar could also be sensitive to cracks in the manufacturing sector. Economists forecast new home sales to fall 4.0% in October and the Index to increase from -19.3 to -17.0 in November. US home sales surged 12.3% in September.

Short-Term Forecast

Near-term trends for the GBP/USD will hinge on US inflation and Bank of England forward guidance. Softer US inflation numbers and a hawkish BoE rate path would support a GBP/USD move to $1.27. Bank of England Governor Andrew Bailey is on the calendar to speak on Tuesday.

GBP to USD Price Action

Daily Chart

The GBP/USD held above the 200-day and 50-day EMAs, sending bullish price signals.

A GBP/USD return to $1.26500 would support a move toward the $1.28013 resistance level.

UK retail sector numbers and the US economic calendar are focal points on Monday.

However, a GBP/USD drop below the $1.26 handle would bring the $1.24410 support level into view.

The 14-period daily RSI reading of 67.42 suggests a GBP/USD move to $1.26500 before entering overbought territory.

4-Hourly Chart

The GBP/USD remained above the 50-day and 200-day EMAs, affirming bullish price signals.

A GBP/USD return to $1.26500 would support a move to the $1.27 handle.

However, a drop through the $1.26 handle would give the bears a run at the 50-day EMA and the $1.24410 support level.

The 14-period RSI on the 4-hour Chart at 68.90 indicates a GBP/USD move to $1.26500 before entering overbought territory.