GBP/USD Price Forecast: Recovers early losses after strong UK Retail Sales data

GBP/USD recoups its Asian session losses on surprisingly upbeat UK Retail Sales data for January.
UK Retail Sales rises 1.8% MoM against estimates of 0.2% and the prior reading of 0.4%.
Investors await preliminary UK-US PMI data for February and the flash US Q4 GDP data.

Sagar Dua FXStreet

The Pound Sterling (GBP) claws back its early losses and flattens around 1.3460 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair attracts bids after the release of the United Kingdom (UK) Retail Sales data for January.

The Office for National Statistics (ONS) has reported that Retail Sales, a key measure of consumer spending, unexpectedly rises 1.8% month-on-month (MoM) from 0.4% in December. The consumer spending measure was estimated to have grown at a moderate pace of 0.2%. Year-on-year (YoY) Retail Sales grew by 4.5%, faster than estimates of 2.8% and the previous release of 1.9%, revised lower from 2.5%.

Investors brace for more volatility in the British currency as the flash S&P Global Purchasing Managers’ Index (PMI) data for February is scheduled to be published at 09:30 GMT. The UK’s Composite PMI is expected to come in lower at 53.4 from 53.7 in January.

Meanwhile, the US Dollar (USD) shows strength ahead of the preliminary United States (US) Gross Domestic Product (GDP) and the S&P Global PMI data for February, which will be published at 13:30 GMT. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near its almost four-week high of 98.00 posted on Thursday.

GBP/USD technical analysis

GBP/USD trades flat at around 1.3460 at the press time. The 20-day Exponential Moving Average at 1.3575 slopes lower above spot, capping rebounds and keeping the near-term bias negative. Consecutive closes beneath this gauge underline a fading recovery attempt. The February 6 low of 1.3508 will act as immediate resistance for the pair.

The 14-day Relative Strength Index (RSI) at 41 (bearish) holds below its midline without reaching oversold, confirming weak momentum.

The setup favors sellers while price holds beneath the falling average, as rallies risk stalling against dynamic resistance. A daily close above 1.3575 would temper downside pressure and signal stabilization; absent that, the path of least resistance remains lower as trend signals stay aligned to the downside.

(The technical analysis of this story was written with the help of an AI tool.)

(This story was corrected on February 20 at 09:46 GMT to say in the first bullet point that GBP/USD recoups its Asian session losses on surprisingly upbeat UK Retail Sales data for January, not February)

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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