GBP/USD Up on Strong UK Retail Sales Figures as BoE Announcement Approaches

December 14, 2017 - Written by Toni Johnson

STORY LINK GBP/USD Up on Strong UK Retail Sales Figures as BoE Announcement Approaches

The Pound Sterling to US Dollar exchange rate is currently recording solid gains today after the latest retail sales figures boost forecast.

The GBP/USD pairing has climbed 0.2% to 1.3433 this morning, helped by a predictable outcome from the latest Federal Open Market Committee (FOMC) meeting that triggered a round of profit-taking on the US dollar.

GBP Gets a Boost from Retail Sales Figures

Better-than-expected retail sales figures for November have boosted the Pound today, after showing that transaction volumes rose 1.1% on the month instead of the 0.4% predicted.

Year-on-year growth climbed from stagnation to 1.6% - massively beating the 0.3% consensus estimate held by economists.

However, many analysts have been quick to warn that the strong data should be viewed cautiously, as the rise in sales could be a result of consumers doing their Christmas shopping early – in part thanks to the Black Friday and Cyber Monday sales.

Retail Economics Chief Executive Richard Lim explains;

‘These figures confirm that online won the Black Friday battle. Online sales growth dwarfed that of in-store as shoppers took advantage of Black Friday discounts, particularly in electricals.’

‘However, some retailers will be concerned that the Black Friday boost has come at the expense of traditional Christmas trading. Many consumers are likely to have pulled forward their seasonal purchases to make their budgets stretch further this Christmas.’

FOMC Hikes Rates as Expected, Leading to Profit-taking on USD

The US Dollar is on soft form today as it begins rebounding from profit-taking following the latest Federal Open Market Committee (FOMC) interest rate decision.

According to a statement from Barclays Capital Research;

‘At its December meeting, the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 25bp to 1.25-1.5%, a move that was in line with our expectation and widely anticipated by markets heading into the meeting. The committee made only modest changes to the FOMC statement, the most notable of which was an upgrade in the description of the pace of job gains to “solid” whereas the committee saw prior employment as restrained by the hurricanes.’

‘...Also notable to us was the two dissents, one from Chicago Fed President Evans and the other from Minneapolis Fed President Kashkari. Kashkari’s dissent was in line with our expectation, given that he dissented against a rate increase in June. Evans was a surprise to us as he generally prefers to avoid dissents in favor of active discussion at the table during the meeting itself.’

As these developments were more-or-less in line with market expectations, there was nothing to push the US Dollar higher and so traders instead took the opportunity to realise their gains after the appreciation seen from USD over the past few weeks.

Will BoE Policy Announcements Give GBP Cause to Rise or Fall Today?

Markets are now looking ahead to the monetary policy announcements from the Bank of England (BoE) due at midday today.

The BoE is not expected to make changes to monetary policy, but markets will be looking to see if policymakers have changed their outlook on the economy and interest rates or remain as dovish as they were in the November meeting.

Some of what the BoE says could be taken with a pinch of salt, given that the latest inflation, wage growth and retail sales data has only just been released and so won’t factor into the decisions made in the latest policy meeting.

Meanwhile, the US Dollar could see a change in direction if this afternoon’s advance retail sales figures for November do indeed show an uptick in growth as forecast.

Economists expect sales to have expanded 0.3% last month after rising 0.2% in October.

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TAGS: Pound Dollar Forecasts