Pound Sterling falls back as upbeat US Retail Sales strengthen US Dollar


  • The Pound Sterling faces pressure as geopolitical tensions improve the appeal for safe-haven assets.
  • UK’s employment and inflation data will influence speculation over BoE rate cuts.
  • The UK economy is on track to come out of a technical recession.

The Pound Sterling (GBP) remains on the backfoot against the US Dollar in Monday’s early New York session. The near-term demand of the GBP/USD pair remains downbeat due to deepening Middle East tensions and speculation that the Bank of England (BoE) will start reducing interest rates sooner than the Federal Reserve (Fed).

Currently, financial markets anticipate that the BoE will begin lowering borrowing costs from August while the Fed is expected to follow the same from the September meeting. 

This week, the United Kingdom’s employment and inflation data will freshly guide market expectations for the BoE as markets wonder when it could start its much-awaited rate-cut cycle. Investors will keenly focus on the wage growth data for three months ending February, which will be released on Tuesday, as it remains a key driver to the UK’s stubborn price pressures. 

Daily digest market movers: Pound Sterling drops ahead of UK Employment

  • The Pound Sterling hovers near more than a four-month low near 1.2430. Escalating Middle East tensions and receded bets that the Federal Reserve (Fed) will pivot to rate cuts in the June meeting have dented the appeal of risk-sensitive currencies. 
  • Hundreds of air strikes from Iran on Israel in retaliation to its attack on the Iranian embassy in Syria near Damascus, in which seven members of its Islamic Revolutionary Guard Corps (IRGC), including two generals, were killed, have spooked demand for risk-perceived currencies.
  • Both scenarios—escalation in geopolitical tensions and faded Fed rate cut hopes—are favourable for the US Dollar, which is considered a safe-haven asset. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, hovers near a fresh five-month high at 106.10.
  • Meanwhile, the upbeat United States monthly Retail Sales data for March strengthens the appeal of the US dollar. The Retail Sales data, representing households’ spending grew at a stronger pace of 0.7% from expectations of 0.3%.
  • On the United Kingdom’s front, improved monthly Gross Domestic Product (GDP) numbers have relieved Bank of England (BoE) policymakers. As expected, the monthly GDP for February rose by 0.1%, confirming that the economy is on course to come out of a technical recession registered in the second half of 2023. The economy also expanded by 0.3% in January, revised higher from 0.2%.
  • Due to the improving economic outlook, the BoE could maintain a restrictive policy until they gain confidence that inflation will sustainably return to the 2% target.

Technical Analysis: Pound Sterling fails to recapture 1.2500

The Pound Sterling experiences a sharp sell-off after a breakdown of the psychological support at1.2500. The long-term trend of the GBP/USD pair has turned bearish as it has dropped below the 200-day Exponential Moving Average (EMA), which trades around 1.2570. 

A breakdown of the Head and Shoulder chart pattern on a daily timeframe has indicated a bearish reversal. The neckline of the aforementioned chart pattern is plotted from December 8 low near 1.2500.

The 14-period Relative Strength Index (RSI) slips sharply below 40.00, indicating that a fresh bearish momentum has been triggered.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD recovers toward 1.0850 as risk mood improves

EUR/USD recovers toward 1.0850 as risk mood improves

EUR/USD gains traction and rises toward 1.0850 on Friday. The improvement seen in risk mood makes it difficult for the US Dollar (USD) to preserve its strength and helps the pair erase a portion of its weekly losses. 

EUR/USD News

GBP/USD stabilizes above 1.2700 after downbeat UK Retail Sales-led dip

GBP/USD stabilizes above 1.2700 after downbeat UK Retail Sales-led dip

GBP/USD staged a rebound and stabilized above 1.2700 after dropping to a weekly low below 1.2680 in the early European session in response to the disappointing UK Retail Sales data. The USD struggles to find demand on upbeat risk mood and allows the pair to hold its ground. 

GBP/USD News

Gold rebounds to $2,340 area, stays deep in red for the week

Gold rebounds to $2,340 area, stays deep in red for the week

Gold fell nearly 4% in the previous two trading days and touched its weakest level in two weeks below $2,330 on Thursday. As US Treasury bond yields stabilize on Friday, XAU/USD stages a correction toward $2,340 but remains on track to post large weekly losses.

Gold News

Dogecoin inspiration Kabosu dies, leaving legacy of $22.86 billion market cap meme coin behind

Dogecoin inspiration Kabosu dies, leaving legacy of $22.86 billion market cap meme coin behind

Kabosu, the popular Shiba Inu dog that inspired the logo of the largest meme coin by market capitalization, Dogecoin (DOGE), died early on Friday after losing her fight to leukemia and liver disease.

Read more

Week ahead – US PCE inflation and Eurozone CPI data enter the spotlight

Week ahead – US PCE inflation and Eurozone CPI data enter the spotlight

Dollar traders lock gaze on core PCE index. Eurozone CPIs in focus as June cut looms. Tokyo CPIs may complicate BoJ’s policy plans. Aussie awaits Australian CPIs and Chinese PMIs.

Read more

Forex MAJORS

Cryptocurrencies

Signatures