GBP/USD – Another strong week for the British pound, will US retail sales slip?

• British pound has jumped close to 500 points over past five weeks
• UK economy grappling with high inflation, widespread strikes
• US retail sales expected to decline in March

British pound rallies, but UK economy struggling

The British pound is poised to post its fifth successive winning week. During this time, the GBP/USD has sparkled, rallying almost 500 points.

This week’s UK releases have not been as positive as the pound’s upswing. GDP was flat in February on a monthly basis, down from 0.4% in January and unable to hit the estimate of 0.1%. Manufacturing Production was also flat and Industrial Production came in at -0.2%.

Inflation remains in double digits, despite the Bank of England’s aggressive rate policy, which has raised the benchmark cash rate to 4.25%. The combination of high inflation and rising interest rates has created a cost-of-living crisis and is weighing on businesses as well. To make things even worse, the country has been hit by widespread strikes in the public sector, as workers protest the drop in real income due to soaring inflation. An IMF forecast released this week indicated that the UK economy is projected to be the worst performer in the G20, which includes Russia.

The economic situation isn’t pretty, and the government and the BoE are under strong pressure to right the ship, and fast. Finance Minister Hunt has said he’ll cut inflation in half and a recession can be avoided, but it’s hard to share his optimism.

US retail sales expected to decline

This week pointed to further deceleration in inflation levels in the US. Headline CPI fell to 5.9%, down from 5.0%, although the core rate nudged up to 5.6%, up from 5.5%. The Producer Price Index declined to 2.7%, down sharply from 3.4%, and the core rate eased to 3.4%, down from 4.8%.

Will the drop in inflation be accompanied by a decline in consumer spending? The markets are bracing for a soft retail sales report for March. Headline retail sales is expected to fall by 0.4% y/y and the core rate is projected to decline by 0.3% y/y.  A weak release could push the US dollar lower, as there will be more pressure on the Fed to consider pausing its rate hikes at the May meeting.

.

GBP/USD Technical

• GBP/USD touched resistance at 1.2537 earlier. The next resistance line is 1.2656
• There is support at 1.2405 and 1.2282

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

Latest posts by Kenny Fisher (see all)

• SEO Powered Content & PR Distribution. Get Amplified Today.
• Platoblockchain. Web3 Metaverse Intelligence. Knowledge Amplified. Access Here.
• Minting the Future w Adryenn Ashley. Access Here.
• Source: https://www.marketpulse.com/fundamental/gbp-usd-another-strong-week-for-the-british-pound-will-us-retail-sales-slip/kfisher