Pound to find support in the near term

The British pound is trading higher for a 4^th straight day against  the greenback after another round of disappointing data from the US cast doubt on how many times the Fed can raise interest rates this year.

Retail sales from the US released earlier today hit the market at -0.1 percent against expectations for a figure of 0.3 percent and follows on from yesterday’s inflation figures which also disappointed investors as they currently still sit below the Fed’s target rate.

This marks the 3^rd straight month of declining retail sales and may give the US central bank something to think about as higher rates are likely to have a negative effect and cause consumers to rein in spending even further.

Although this latest release is not expected to interfere with the Fed’s move to lift interest rates this month which is more than 90 percent priced into the market, it has cast doubt on the number of further rate hikes this year with many predicting that there will be a total of three rate hikes instead of four.

All the above is likely to support the British pound against its US counterpart in the near term and especially since the Bank of England is also preparing to continue their interest rate hiking cycle to reduce inflation from the current 3 percent down to 2 percent.

The danger is that the expected rate hikes are already factored into the Pound Sterling’s recent gains so if data out of the UK doesn’t live up to expectations we may see rate expectations cut back which will prove negative for the pound.

"With the market now pricing one and a half rate hikes from the BoE before year end and recent data disappointing expectations, we think it will be difficult for monetary policy to provide much more support from here," said Deutsche Bank strategist George Saravelos