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GBP/USD Analysis: upward momentum ahead of Bank of England governor's remarks

The pound sterling fell against the euro, the US dollar, and other major currencies after British retail sales volumes fell to levels last seen during the pandemic lockdowns. however, one economist says a sharp rebound in retail sales volumes is on the horizon as real incomes rise.

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    The GBP/USD pair had fallen to the support level of 1.2373 before rebounding to close trading for the week around the resistance level of 1.2462. Prior to that, the British currency seemed set for another weekly decline against major currencies after it was reported that British retail sales fell by -2.4% year-on-year in October, down from -1.5% in September. Clearly, that’s below the consensus forecast of -1.5%. Sales were expected to rise 0.3% monthly in October, recovering from the revised September reading of -1.1%, but came in at -0.3%.

    Latest forecasts for GBP/USD:

    In this regard, Justin McQueen, a market analyst at Reuters, says: “The British pound is sliding to the $1.24 level after weak retail sales in all areas.” “The Bank of England’s first-rate cut is still priced as a 50/50 call in May 2024.”

    Overall, these retail sales figures will reinforce market bets that the Bank of England will deliver several interest rate cuts in 2024 in response to a weak economy, increasing pressure on the pound. For its part, the Office for National Statistics says that its findings still show a discrepancy between the quantities purchased (volume) and the amount spent (value) in retail sales over time due to rising prices. In fact, retail sales volumes in October 2023 were at their lowest level since February 2021 when widespread and extensive Covid restrictions were imposed. Also, the volume of goods sold continues to decline in the face of rising costs, with headline CPI inflation at 4.6% in October, well above the long-term average.

    Overall, the Bank of England will view these retail sales figures as confirmation that demand in the UK economy continues to falter in the face of high inflation and multi-year highs in interest rates, which will ensure inflation remains low. Meanwhile, regarding what is expected in the future, PricewaterhouseCoopers says that November usually brings better news for retailers with the arrival of Black Friday. However, PwC research suggests that the cost-of-living crisis will mean £1.5bn less is spent on the event.

    As for the future performance of the pound sterling, the numbers provide further evidence of a slowdown in the economy, which some economists do not believe will change until the second half of 2024. In this regard, David Alexander Mayer, an economist at Julius Baer, says: “Consumption will remain weak, with mortgage costs rising.” Real estate next year: “Only a gradual recovery is likely to occur in the second half of 2024.” Also, “With lower interest rate expectations, the best is over for the British pound.”

    However, it is not just pessimism and gloom, as one economist says recovery in this sector is on the horizon. In this regard, Pantheon Macroeconomics says that volumes will rise in the coming months because wages are now rising faster than inflation, especially commodity inflation.

    GBP/USD Expectations today:

    According to the performance on the daily chart below, the bulls succeeded once again in pushing the price of the GBP/USD pair to break the general downward trend. Nearby, For the trend over that period to turn bullish, the bulls must move further towards the resistance levels of 1.2550 and 1.2620, respectively. On the other hand, over the same period, the movement of the bears in the currency pair towards and below the support level of 1.2330 will be important in confirming the bears that they have the strongest control. So far, we still prefer selling GBP/USD from every upside.

    Today, the economic calendar is devoid of any important data, whether from Britain or the United States, so the focus will be on statements by the Governor of the Bank of England.

    GBP/USD (Daily Chart)

    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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