The British pound is drifting on Friday, after showing unusually strong volatility this week. The pound rebounded on Thursday, racking up gains of 1.06% and briefly breaking above the symbolic 1.25 line.

UK retail sales showed a strong gain in April, with a gain of 1.4% MoM. This followed a decline of 1.2% in March. However, on a yearly basis, sales volumes were 4.9% lower, as the broader picture looks grim. The monthly gain for March may have been a blip, as consumers were hit with higher household energy costs as well as an increase in taxes. Add into the mix inflation at 9.0% and possibly heading into double-digits, and it’s difficult to envision retail sales moving higher.

Consumer confidence hits record low

The GfK consumer confidence index remains deep in negative territory. The index dropped to -40 in May, down from -38 in April. How pessimistic are consumers about the economy? The previous record of -39 was set in July 2008, at the height of the global financial crisis.  Consumer confidence is considered an early, reliable signal of economic activity, and these massively poor numbers could well indicate that the UK economy is falling into recession. A GfK note summed up the grim situation, saying that the BoE is pessimistic about inflation, consumer confidence is gloomy, and there aren’t any reasons for optimism anytime soon. This certainly does not bode well for the British pound, which has plunged over 7% since the start of the year.

The BoE finds itself playing catch-up with the inflation curve. There have been voices calling for more aggressive rate hikes than the 25-bps increments we’ve seen over the past three meetings, especially with inflation hitting 9%. The central bank has a daunting challenge, as it must raise rates to curb inflation but also needs to be mindful that the economy is still recovering from Covid and could tip into a recession due to high interest rates.

GBP/USD technical

  • 1.2393 has switched back to support. Below, there is support at 1.2275.

  • There is resistance at 1.2525 and 1.2643.

GBPUSD

This article 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 OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD stays in red below 1.0150 after weak US data

EUR/USD stays in red below 1.0150 after weak US data

EUR/USD has managed to stage a modest recovery in the early American session but failed to reclaim 1.0150. The data from the US showed Housing Starts fell by 9.6% in July, limiting the greenback's gains as focus shifts to Wall Street's opening bell.

EUR/USD News

GBP/USD steadies below 1.2050 as dollar rally loses steam

GBP/USD steadies below 1.2050 as dollar rally loses steam

GBP/USD trades with modest daily losses below 1.2050 in the second half of the day on Tuesday. Following the disappointing Housing Starts data from the US, the US Dollar Index retreated from multi-week highs, allowing the pair to limit its losses. 

GBP/USD News

Gold falls toward $1,770 as US yields push higher

Gold falls toward $1,770 as US yields push higher

Gold came under renewed bearish pressure in the early American session and dropped toward $1,770. The benchmark 10-year US Treasury bond yield is up nearly 2% on the day above 2.8%, forcing XAU/USD to continue to push lower.

Gold News

Three reasons why meme coins Dogecoin and Shiba Inu are hot again

Three reasons why meme coins Dogecoin and Shiba Inu are hot again

Dogecoin and Shiba Inu prices break into a rally, offering holders gains. Dogecoin offered holders 16% gains over the past week, and competitor Shiba Inu yielded 30% profits.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures