GBP/USD: Robust UK retail sales and dovish Fed to cheer sterling up

GBP/USD has been retreating amid diverging disease curves across the Atlantic, yet other factors such as rising US yields and worries about Britain's furlough scheme were also in play. Is the pendulum about to swing in the other direction this week? UK retail sales, the Fed's minutes and coronavirus are in focus, FXStreet’s analyst Yohay Elam briefs.

Key quotes

“Pound traders will want to see the disease remaining under control even if cases continue rising. Any new local lockdowns may weigh on sterling. PM Boris Johnson aims to reopen schools in September and any delay would also cause suffering. On the other hand, if infections fall, the pound has room to rise.”

“The economic calendar kicks off with CPI figures on Tuesday. Headline CPI stood at 0.6% yearly in June, and no substantial changes are likely in July. Consumption has recovered faster than the broader economy. Updated expenditure data is due out now with July's retail sales. Will the volume return to that seen last year? The option is remote, but cannot be ruled out, especially given the government's furlough scheme.”

“While the infections curve is clearly off the peak, deaths remain at an elevated level in the US. A consistent drop in the seven-day rolling average is needed to confirm the trend and provide hope. Vaccine news will also be of interest after Russia's announcement' propelled the global race to develop immunization into a higher gear. Hopes may boost the market and weigh on the greenback.” 

“Investors assume lawmakers will eventually strike a deal, but every day that passes without new relief is weighing on the economy. If officials settle for a small package, it would hurt the economy and also Trump's chances. A larger boost would boost the economy and the president's probability of holding onto power.”

“The highlight of the economic calendar is the Federal Reserve's meeting minutes from the July meeting. Back then, the Fed expressed concern about the recent downturn following the resurgence of coronavirus cases from mid-June. Will the minutes unveil even greater worries? Or will it convey a message of stability?”