GBP/USD is trading at a ten-day low as it extends Thursday’s drop under 1.36 into the mid-1.35s after a sharp decline in December retail sales in data. But economists at Scotiabank expect cable to recover towards the 1.38 level.
Current risk setting looks set to prevent GBP upside for now
“The 3.7% MoM drop widely missed expectations calling for a 0.6% decline, with the ex. auto fuel reading also disappointing at -3.6% vs -0.8% expected. The impact of Omicron on consumer spending was much larger than anticipated by economists, but retail spending should recover as the country leaves the virus wave behind.”
“We don’t think the print is enough to dissuade the BoE from hiking at its February meeting, but markets have trimmed their expectations with OIS markets pricing in 22bps of hiking compared to 26bps on Wednesday.”
“We expect the GBP to recover from its current slump toward the 1.38 level as additional BoE hikes come in, but the current risk setting looks set to prevent GBP upside for now.”
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