Will GBP/USD clock fresh one-month high after UK retail sales release?

GBP/USD remains well bid in Asia, but remains below 1.25 handle.

The surge in inflation reported by the UK ONS earlier this week saw the pair jump from 1.2340 to 1.2506, however, the subsequent shift in the market sentiment - from risk-on to risk-off restricted further gains.

Focus on UK retail sales

UK retail sales are seen rising 0.4% m/m in February. In annualised terms, the number is expected to come-in at 3.1%.

Advance indicator suggests potential for disappointment

The British Retail Consortium (BRC) released on March 7 showed UK retail sales softened in February as consumers adopted a more cautious approach. The quarterly non-food sales dropped for the first time since 2011.

In the four weeks to February 25 retail sales in the UK dropped by 0.4 per cent on a like-for-like basis. Hence, there is a risk the official number due for release today could disappoint market expectations.

GBP/USD dropped on March 7

GBP/USD dropped from 1.2252 to 1.2169 on March 7. The decline was at least in part due to concerns that Brits are feeling the pinch (reduced spending) of higher inflation. Also note, the drop in the Cable was also due to a sudden surge in the March rate hike bets and speculation of faster Fed rate hikes.

Pound could rally on weak UK retail sales as well

This is because a weaker-than-expected UK retail sales number would only add credence to the argument that the BOE needs to hike rates to counter inflation. Thus, a drop in the GBP/USD on weak data could be short lived. The pair could clock fresh one-month highs above 1.25 if we get a positive surprise. 

GBP/USD Technical Levels

A break above 1.25 (zero figure) would open doors for a quick fire rally to 1.2569 (Feb 24 high), above which the resistance at 1.2704 (Dec 8 low) could be put to test. On the other hand, a breakdown of support at 1.2435 (Mar 20 high) would expose 1.2403 (50-DMA) and 1.2383 (Feb 15 low).