The Pound Sterling has shown strong performance against its major counterparts as UK Retail Sales data for August exceeded expectations. Retail Sales grew by 2.5% on a year-on-year basis and 1% on a month-on-month basis, showing robust consumer spending. Increase in sales in textile clothing and footwear stores and food stores contributed to the strong performance, while sales at other non-food stores declined. This surge in demand for durable items could fuel price pressures, especially after core inflation came in hotter than expected in August.
The Bank of England (BoE) decided to keep interest rates steady at 5% in its recent policy meeting, with only one member voting for a rate cut. BoE also announced plans to trim government bonds holdings by 100 billion pounds over the next year. BoE external policy member Catherine Mann has expressed support for maintaining a restrictive policy stance until inflation risks are contained. The decision to keep interest rates unchanged, despite rising inflationary pressures, indicates the central bank’s cautious approach to managing the economy.
The Pound Sterling refreshed a two-year high against the US Dollar, surpassing the crucial resistance of 1.3300. This strength in GBP/USD pair is attributed to growing speculation that the Federal Reserve (Fed) will continue its policy-easing cycle in the last quarter of the year. The Fed initiated its easing cycle with a 50 basis points rate cut, signaling its focus on labor market health and confidence in inflation returning to the target of 2%. Market expectations suggest further rate cuts by the Fed in the remaining meetings this year, which could impact the US Dollar’s performance against other currencies.
In technical analysis, the Pound Sterling is expected to maintain its firm stance near 1.3300 against the US Dollar, supported by active bullish momentum. The 14-day Relative Strength Index (RSI) indicates a strong bullish trend, with resistance near the psychological level of 1.3500 and crucial support at 1.3000. The next trigger for the Pound Sterling and the US Dollar will be the preliminary S&P Global PMI data for September, scheduled for release on Monday.
The Bank of England’s interest rate decision, announced at the end of its eight scheduled meetings per year, plays a significant role in determining the Pound Sterling’s performance. A hawkish stance on inflationary outlook leading to interest rate hikes is bullish for GBP, while a dovish view resulting in unchanged or reduced interest rates is bearish. The last BoE interest rate decision maintained rates at 5%, in line with market expectations. Overall, the UK economy’s performance and inflation outlook will continue to influence the Pound Sterling’s movement in the global forex market.
