- The UK Retail Sales rebounded 3.4% MoM in January, a big beat.
- Core Retail Sales for the UK rose 3.2% MoM in January.
- GBP/USD flirts with 1.2600 on upbeat UK data.
The UK Retail Sales rebounded 3.4% over the month in January vs. 1.5% expected and -3.3% reported in December, the latest data released by the Office for National Statistics (ONS) showed on Friday.
The Core Retail Sales, stripping the auto motor fuel sales, rose 3.2% MoM vs. 1.7% expected and -3.5% seen in December.
The annual Retail Sales in the United Kingdom jumped 0.7% in January versus -1.4% expected and December’s -2.4% while the Core Retail Sales also increased by 0.7% in the reported month versus -1.6% forecast and -2.1% previous.
Main points (via ONS)
This was the largest monthly rise since April 2021 and returned volumes to November 2023 levels.
Sales volumes in all subsectors except clothing stores increased over the month, with food stores such as supermarkets contributing most to the increase.
More broadly, sales volumes fell by 0.2% in the three months to January when compared with the previous three months, however this was the smallest fall since August 2023.
Market reaction to UK Retail Sales report
GBP/USD is keeping its range trade intact near 1.2600 despite the upbeat UK Retail Sales data. The spot is trading flat on the day.
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, aka ‘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.
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