The UK Retail Sales Overview
The United Kingdom (UK) docket has the Retail Sales data for September to be released by the Office for National Statistics (ONS) on Friday, later this session at 06:00 GMT.
UK Retail Sales are expected to decline by 0.2% month-over-month (MoM) in September, swinging from a 0.5% increase seen in August. On an annualized basis, Retail Sales are seen rising 0.6% during the reported month, inching lower from 0.7% prior.
Core Retail Sales, stripping the basket of motor fuel sales, are anticipated to have climbed by 0.7% year-over-year (YoY), lower than the previous reading of 1.2%.
How could the UK Retail Sales affect GBP/USD?
UK Retail Sales data for September could contribute to the downward pressure on the GBP/USD pair amid signs of softer consumer spending. Even the surprise uptick may struggle to help the pair hold ground amid rising bets of more interest rate cuts by the Bank of England (BoE) in the remaining year.
The Pound Sterling (GBP) faced challenges after BoE Monetary Policy Committee (MPC) member Swati Dhingra signaled on Thursday that United States (US) tariffs could put downward pressure on prices in the medium term. The preliminary United Kingdom (UK) Purchasing Managers’ Index (PMI) data by S&P Global will be eyed later in the day. Attention will be shifted toward the US Consumer Price Index figures due on Friday.
Technically, the GBP/USD pair remains steady after five days of losses, trading around 1.3320 at the time of writing. The pair may target the two-month low of 1.3248, recorded on October 14, followed by the six-month low of 1.3141. On the upside, the initial barrier lies at the nine-day Exponential Moving Average (EMA) of 1.3365, followed by the 50-day EMA at 1.3433. A break above these levels would improve the short- and medium-term price momentum and open the doors for the pair to test the monthly high of 1.3527.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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