Pound Rescued by Positive Retail Sales But Danger Still Lies Ahead

The British Pound was thrown a lifeline this morning after UK retail sales rebounded unexpectedly in June, thanks to a rise in sales of antiques and second-hand clothes.
Lukman Otunuga

While today’s positive news may reduce concerns over the health of the UK economy, this is unlikely to last due to Brexit and political developments in Westminster. Another factor offering the Pound a false sense of stability is a weaker Dollar following the International Monetary Fund’s (IMF) comment on the Greenback being overvalued by 6%-12%.

At the end of the day, nothing has changed for the British Pound. The rising threat of a no-deal Brexit will continue weakening appetite towards the currency this trading quarter. With Boris Johnson and Jeremy Hunt both insisting that the Irish backstop must be removed from Brexit negotiations, the odds of the UK crashing out of the EU without a deal are rising. The Pound is set to weaken further as Brexit and politics overshadow economic fundamentals.

In regards to the technical picture, the GBPUSD is heavily bearish on the daily charts. There have been consistently lower lows and lower highs with the MACD trading to the downside. Sustained weakness below 1.2500 should encourage a move back down towards 1.2420 and 1.2350.

Gold set to shine in low interest rate environment

Gold is positioned to glitter this quarter thanks to a weaker Dollar, fears revolving around slowing global growth and most importantly lower interest rates across the globe.

The precious metal tends to flourish in a low interest rates environment, given how it is a zero-yielding asset. Rising expectations over the Federal Reserve cutting interest rates in July should provide a solid foundation for the precious metal to push higher in the short to medium term. Gold prices are trading comfortably above $1400 as of writing and could jump towards $1450 when the Federal Reserve cuts interest rates this month for the first time since 2008.

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