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The British Pound came under pressure on Friday morning after UK retail sales exceeded expectations. However, a disappointing consumer sentiment survey suggests that the government's pessimistic tone regarding the Economy and national finances is having a chilling effect. According to Forex trading, the GBP/EUR exchange rate rose to 1.1925, just three points away from its 2024 high, after the Office for National Statistics said UK retail sales volumes rose 1.0% on a monthly basis in August, doubling July's figure and easily beating forecasts of 0.4% growth.
According to the economic calendar, the annual growth rate rose to 2.5% from 1.5% and beat expectations of 1.4%. Meanwhile, the strong reading justified the Bank of England's decision on Thursday to adopt a cautious approach to cutting interest rates further and helped the GBP/USD exchange rate extend its march to the 1.3340 resistance.
With the latest figures, future risks lie in declining consumer confidence. The GfK Consumer Confidence survey - the country's longest-running and most important survey of consumer sentiment - was also released on Friday. The survey reported a significant decline in confidence across all areas, with the main index falling by seven points. Clearly, consumer confidence will be important in determining whether the rise in retail sales can continue. Headwinds include the autumn budget, which could be a gloomy event with the government warning that it will need to raise taxes to improve its financial position.
Overall, the new UK government has been preparing the nation for a tough budget in October that will see tax increases and spending cuts. Messages from Prime Minister Keir Starmer and Chancellor Rachel Reeves have been pessimistic, and economists have warned that the government risks talking the economy down. Commenting on this, Matt Britzman, senior equities analyst at Hargreaves Lansdown, said: "Words matter, and the new government's continued pessimistic tone about the economy and the upcoming budget could become a self-fulfilling prophecy.
Overall, the Bank of England's decision to keep interest rates on hold on Thursday will disappoint consumers who had been hoping for lower rates, however, financial markets show that investors fully expect the next rate cut to come in November. Nevertheless, the pound is benefiting from the BoE's decision to keep rates on hold, and strong retail sales figures are providing a fresh boost to buying interest ahead of the weekend. However, the strong performance could defy a consumer-led economic slowdown.
According to the stock trading platforms, UK shares fell at the end of trading, posting weekly losses. The FTSE 100 index of British shares fell 1.2% to close at 8,230 points on Friday, reversing strong gains the previous day, driven by a large interest rate cut by the Federal Reserve. Traders continued to digest policy decisions taken by central banks this week, including those from the Federal Reserve and the Bank of England, while assessing mixed economic data.
UK retail sales in August exceeded estimates, reaching their highest level in two years, but a survey revealed a sharp decline in consumer confidence for September. Among the biggest losers were shares of Spirax-Sarco Engineering (-4.8%), Frasers Group (-4.5%), and Next (-4%). Also, shares of Burberry fell 3.5% after being removed from the FTSE 100 index and after Jefferies downgraded the stock to "Underperform" from "Hold" and cut the target price to 490 pence from 800 pence. Over the week, the FTSE 100 index fell by 0.5%.
Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money Technical forecasts for the GBP/USD pair today:
With the recent gains in the GBP/USD and the technical indicators on the daily chart moving towards strong overbought levels, the Sterling may face profit-taking. Technically, the nearest resistance levels to the recent performance are 1.3365, 1.3430, and 1.3500, respectively. On the other hand, on the same time frame, the currency pair has moved towards support levels of 1.3150 and 1.3000, which could end the current uptrend. Ultimately, we expect the GBP/USD to stabilize around the current performance until the market reacts to the reading of the US inflation data preferred by the Federal Reserve and statements by several bank officials throughout the week.
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