GBP/USD Daily Forecast – UK Retail Sales Miss Spurs Rate Cut Speculation

Retail sales in the UK fell 0.6% in December, marking a fifth straight month without growth. GBP/USD has come under pressure and has nearly erased the gain from Thursday.

Analysts were remarkably off-target in their forecasts which has likely caught speculators off guard.

Analysts had called for a rise of half a percent versus the reported decline of 0.6%. In addition to the drop in sales in December, there was a downward revision for the prior month to -0.8% versus the originally reported decline of 0.6%.

With recent talks of a potential rate cut from several members Bank of England’s monetary policy committee, there is little reason to believe the bank won’t act at their next meeting following this report.

The Bank of England’s next monetary policy decision will take place on Thursday, January 30. The only other major data release ahead of it is manufacturing and services PMI data which will be released next week.

Technical Analysis

GBP/USD has fallen and is currently trading near a horizontal level at 1.3050. The pair closed near this level last week and gapped below at the open this week.

Some buying is seen from the level and the decline has somewhat stalled out for now. In the event of a bearish break, the next level of support for the pair comes in at 1.3013.

Beyond that, there is an important support zone between 1.2960-1.2990 which triggered a three-consecutive day recovery this week.

Rallies in the pair are likely to be met with sellers considering the outcome of the retail sales report.

The dollar has regained upward momentum which is also an important consideration for GBP/USD traders.

The US dollar index has erased losses from the early week and has returned to positive territory. The greenback got a boost from yesterday’s US retail sales beat and the index has been well bid since.

Bottom Line

• Sterling has come under pressure after a three-consecutive day recovery after UK retail sales figures came in well below analyst expectations.
• The dollar has regained upward momentum following the US retail sales report on Thursday.