In the European session on Friday, the British pound gained strength versus other major currencies following data indicating that U.K. retail sales increased more than anticipated in August due to higher sales of food and apparel due to warmer weather.
The Office for National Statistics reported that retail sales increased by 1.0% in August compared to a 0.7% increase in July. It was anticipated that sales would increase by 0.3%.
Retail sales growth increased to 2.5% annually in July from 1.5 percent. This was a larger annual gain than the predicted 1.4% increase, and the biggest since February 2022.
According to a Gfk market research study, consumer confidence in the United Kingdom fell precipitously in September. In August, the confidence indicator was -13; in September, it was -20.
When it came to its main competitors in today’s Asian trading, the British pound remained stable.
Analysis
Today in European trade, the pound rebounded from early lows of 1.3272 and 0.8407 to reach a 2-1/2-year high of 1.3341 against the US dollar and more than a 2-year high of 0.8381 against the euro. Resistance for the pound is expected to be found at 1.34 against the US dollar and 0.82 against the euro if its upward trend continues.
The pound strengthened against the Swiss franc and the yen, rising from early lows of 1.1240 and 188.73 to nearly a 3-week high of 191.12 and a 2-month high of 1.1300, respectively. Resistance for the pound might be seen around 1.15 against the franc and 195.00 against the yen.
Looking ahead, the New York session will see the release of the U.S. Baker Hughes oil rig count data, the Canada industrial product, new housing, and raw materials price indexes for August, as well as the July retail sales data.
The European Commission is scheduled to release results from the euro area flash consumer sentiment survey at 10:00 am ET. It is anticipated that the confidence index will rise from -13.5 in August to -13.0 in September.
Final Thoughts
The British pound’s recent surge against major currencies, driven by stronger-than-expected U.K. retail sales in August, reflects the positive impact of consumer spending, particularly in food and apparel due to warmer weather.
The 1.0% monthly increase, significantly exceeding the anticipated 0.3%, underscores a more robust consumer base than previously forecasted. Coupled with a 2.5% annual growth in retail sales, the largest since February 2022, this signals resilience in the U.K. economy despite broader economic challenges.
However, the jump in retail activity contrasts with the sharp drop in consumer confidence, highlighting a complex economic environment where spending is up, but sentiment is down.
On the other hand, the British pound’s gains against the U.S. dollar, euro, yen, and Swiss franc show that the market is favoring sterling amid the latest economic data.
Despite lower consumer confidence in the U.K., traders are seemingly optimistic about the pound’s trajectory, expecting further resistance levels at 1.34 against the U.S. dollar and 0.82 against the euro.
However, the mixed economic indicators, such as declining confidence and global market conditions, suggest that while the pound is performing well in the short term, future movements may be influenced by ongoing domestic and international economic developments.