British Pound (GBP): Sterling Shoots Higher as UK Retail Sales Shatter Expectations, GBP/USD up 0.5%
- Written by: Gary Howes
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The British pound has entered the weekend on the front-foot and momentum should serve the currency well in the first half of next week.
But - risks do remain.
On Wednesday we get the release of the minutes from the January MPC meeting at the Bank of England - will there be any hints at the timing of interest rate hikes?
On the same day we get the all-important unemployment figures. A greater than expected decline in the claimant count will be pro-GBP. Keep an eye on the claimant count - analysts are forecasting a 7.3% reading - anything higher will be GBP-negative.
But - risks do remain.
On Wednesday we get the release of the minutes from the January MPC meeting at the Bank of England - will there be any hints at the timing of interest rate hikes?
On the same day we get the all-important unemployment figures. A greater than expected decline in the claimant count will be pro-GBP. Keep an eye on the claimant count - analysts are forecasting a 7.3% reading - anything higher will be GBP-negative.
18:37: GBP/CAD gains to accelerate?
Shaun Osborne at TD Securities reckons that should a key resistance level be broken in the GBP/CAD then gains will accelerate:
"GBPCAD reached a marginal new cycle high today (highest since September 2009) as it continues to press up against channel resistance (not especially strong) at 1.8050.
"The broader trend here is up and strongly so we think. Trend momentum is bullishly aligned across short, medium, long and ultra-long time frames (an unusual constellation of signals) that makes us think the 2013 rally is the start of a multi-year adjustment—higher—in the GBP. Gains should really pick up more speed again above 1.8050 for 1.8200/50 near-term (1.90/92 further out). Support is 1.7790/00."
"GBPCAD reached a marginal new cycle high today (highest since September 2009) as it continues to press up against channel resistance (not especially strong) at 1.8050.
"The broader trend here is up and strongly so we think. Trend momentum is bullishly aligned across short, medium, long and ultra-long time frames (an unusual constellation of signals) that makes us think the 2013 rally is the start of a multi-year adjustment—higher—in the GBP. Gains should really pick up more speed again above 1.8050 for 1.8200/50 near-term (1.90/92 further out). Support is 1.7790/00."
16:46: Markets reckoning Bank of England will have to act
Currency markets have made it clear that they now see the Bank of England acting earlier than it likes to admit. As long as data stays strong, this viewpoint will hold. Piet Lammens at KBC Markets comments on today's events for FX:
"EUR/GBP drifted sideways in the 0.8320/40 area ahead of the UK retail sales report. The report was a positive shocker. EUR/GBP spiked to the 0.8260 area and remained under pressure going into the US trading session. Of late, there was quite some speculation that the BoE might amend its forward guidance which could allow it to keep its policy accommodative for longer.
"In theory, the BoE might still use this option, but it might hurt its credibility. So, for now, markets apparently assume that this kind of strong data will put the BoE under pressure to raise rates rather early. The jury is still out, but EUR/GBP is nearing the 0.8230/25 support. Cable jumped around one big figure upon the UK retail sales release. The test of the 1.63/1.6220 support area looks rejected for now, even as the dollar remains well bid."
"EUR/GBP drifted sideways in the 0.8320/40 area ahead of the UK retail sales report. The report was a positive shocker. EUR/GBP spiked to the 0.8260 area and remained under pressure going into the US trading session. Of late, there was quite some speculation that the BoE might amend its forward guidance which could allow it to keep its policy accommodative for longer.
"In theory, the BoE might still use this option, but it might hurt its credibility. So, for now, markets apparently assume that this kind of strong data will put the BoE under pressure to raise rates rather early. The jury is still out, but EUR/GBP is nearing the 0.8230/25 support. Cable jumped around one big figure upon the UK retail sales release. The test of the 1.63/1.6220 support area looks rejected for now, even as the dollar remains well bid."
16:00: Sterling rally back on
"The Cable rallied more than a figure amid the retail sales greatly surprised on the upside in December reading. Data sent GBPUSD to 1.6459 (at the time of writing) – a couple of pips below the week high of 1.6464. Should the Cable close the week above the fibo support (1.6315/17), the trading should get back to the broader uptrend channel. EURGBP sold-off to 0.82606. The MACD will step in the red zone for a daily close below 0.8245, suggesting end of the upside correction." - Ipek Ozkardeskaya at Swissquote Bank.
15:30: GBP/USD at 1.65 next?
Matt Weller at GFT reckons today's retail sales data will offer further gains for Sterling:
"The GBP/USD was the star of the currency market over the last 24 hours due a stellar retail sales report. The figure came out five times better than expected, suggesting the holiday period was strong for consumers and retailers. From a technical perspective, the GBP/USD is test resistance at the central Monthly Pivot Point (1.6450), so a period of consolidation would not be surprising heading into the weekend. Meanwhile, if rates can break above the 1.6450 level, a continuation up toward 1.6500 is likely next."
"The GBP/USD was the star of the currency market over the last 24 hours due a stellar retail sales report. The figure came out five times better than expected, suggesting the holiday period was strong for consumers and retailers. From a technical perspective, the GBP/USD is test resistance at the central Monthly Pivot Point (1.6450), so a period of consolidation would not be surprising heading into the weekend. Meanwhile, if rates can break above the 1.6450 level, a continuation up toward 1.6500 is likely next."
15:26: GBP holds post-data gains
Some more reactions with regards to the British pound following today's strong retail sales data:
"UK December retail sales rose a whopper 2.6% in the month, well ahead of +0.3% expectations—Merry Christmas!" - Shaun Osborne at TD Securities.
This was the biggest year over year rise in nearly a decade and the best month over month jump in more than 4 years as Christmas season turned out to be a blockbuster for some retailers. According to the ONS it was the small store owners that did best as their sales grew three times as fast as those of the large retailers. In either case today's data provided a much needed boost for cable bulls and has tempered some of the speculation that UK economy reached peak growth in Q4 of this year." - Boris Schlossberg at BK Asset Management.
"UK December retail sales rose a whopper 2.6% in the month, well ahead of +0.3% expectations—Merry Christmas!" - Shaun Osborne at TD Securities.
This was the biggest year over year rise in nearly a decade and the best month over month jump in more than 4 years as Christmas season turned out to be a blockbuster for some retailers. According to the ONS it was the small store owners that did best as their sales grew three times as fast as those of the large retailers. In either case today's data provided a much needed boost for cable bulls and has tempered some of the speculation that UK economy reached peak growth in Q4 of this year." - Boris Schlossberg at BK Asset Management.
09:35: GBP/USD in strong rebound
A look at the reaction of Sterling following today's retail sales release: 
09:30: ALERT! UK retail sales surge, sterling shoots up
UK Retail Sales (December) = 2.8% vs 0.3% expected and 0.4% prior. GBP shoots higher.
09:00: UK retail sales ahead
UK retail sales will be the key driver of the UK currency today. Lloyds Bank give their view on how it could impact GBP:
"UK retail sales for December will be the major focus for GBP today, and with GBP/USD close to an important support area there is a good chance of significant volatility in GBP/USD. The December retail sales number is the most significant of the year because of the size of Christmas sales, though in reality its significance can be overstated as seasonal patterns are difficult to disentangle and any indication provided by December can often be reversed in January.
"Even so, the market is likely to take notice of this month’s data. We suspect the speculative market bias is currently to be short GBP, with 1.63-1.6310 looking like a big support area for GBP/USD. Our own economists’ forecast of -0.2% m/m suggests this may well break, though whether it is enough to trigger a major decline is more doubtful.
"The underlying strength of the UK data in recent months still suggests to us that the current softer tone ought to be seen as a near term GBP buying opportunity. There is also a speech from MPC member Broadbent at 12:15 which may provide some insight on monetary policy and have some effect on GBP."
"UK retail sales for December will be the major focus for GBP today, and with GBP/USD close to an important support area there is a good chance of significant volatility in GBP/USD. The December retail sales number is the most significant of the year because of the size of Christmas sales, though in reality its significance can be overstated as seasonal patterns are difficult to disentangle and any indication provided by December can often be reversed in January.
"Even so, the market is likely to take notice of this month’s data. We suspect the speculative market bias is currently to be short GBP, with 1.63-1.6310 looking like a big support area for GBP/USD. Our own economists’ forecast of -0.2% m/m suggests this may well break, though whether it is enough to trigger a major decline is more doubtful.
"The underlying strength of the UK data in recent months still suggests to us that the current softer tone ought to be seen as a near term GBP buying opportunity. There is also a speech from MPC member Broadbent at 12:15 which may provide some insight on monetary policy and have some effect on GBP."
08:50: NZD under pressure
The New Zealand dollar (NZD) is a notable under-performer on Friday morning.
"NZDUSD extended the downside correction to 0.8288, the 21-50 & 100-day moving averages joined at about 0.8250 – with support seen at this level. AUDNZD rebounded from the fresh low of 1.0543 in NY to 1.0623. Option barriers are seen pre-1.0635. Moving forward, we believe that the NZD-longs are likely to dominate despite softer CPI expectations to be released next week. The RBNZ is expected to proceed with a rate hike latest at March; some still give chance to a January increase." - Swissquote Research.
"NZDUSD extended the downside correction to 0.8288, the 21-50 & 100-day moving averages joined at about 0.8250 – with support seen at this level. AUDNZD rebounded from the fresh low of 1.0543 in NY to 1.0623. Option barriers are seen pre-1.0635. Moving forward, we believe that the NZD-longs are likely to dominate despite softer CPI expectations to be released next week. The RBNZ is expected to proceed with a rate hike latest at March; some still give chance to a January increase." - Swissquote Research.
British Pound (GBP) under pressure
Sterling remains under pressure on global FX markets as a week of no data releases weighs on sentiment.
There exists a sense that the UK recovery is going to come off the boil somewhat and this will give the Bank of England breathing space when it comes to raising rates. Today's retail sales will be of utmost importance.
Latest exchange ratesThere exists a sense that the UK recovery is going to come off the boil somewhat and this will give the Bank of England breathing space when it comes to raising rates. Today's retail sales will be of utmost importance.
