Pound weakens following shock contraction in UK retail sales

Philip McHugh September 20th 2021 - 2 minute read

The pound softened on Friday, as GBP investors were left disappointed by a lacklustre UK retail sales print.

Sterling appears to have extended this downside momentum so far this morning, with GBP/EUR retreating to €1.1676 and GBP/USD tumbling to $1.3672. GBP/CAD has dipped to CA$1.7490, while GBP/AUD and GBP/NZD hold steady at AU$1.8906 and NZ$1.9491 respectively.

Looking ahead the focus this week will clearly be on the Federal Reserve’s latest policy meeting. Will some hawkish forward guidance bolster the US dollar?

What’s been happening?

The pound closed last week’s session on the back foot, following the publication of the UK’s latest retail sales figures.

The Office for National Statistics (ONS) reported a shock contraction in sales growth in August, with the drop in consumer spending reigniting concerns over the strength of the UK’s economic recovery.

The US dollar, on the other hand, rose in tandem with US Treasury yields on Friday, whilst also being bolstered by a cautious market mood.

However the ‘greenback’s gains were capped by the release of the University of Michigan’s consumer sentiment index, as it reported that consumer morale remained close to a decade high this month.

At the same time, the euro was mostly directionless on Friday, following the publication of the Eurozone’s consumer price index.

August’s finalised release confirmed that inflation rocketed up to a decade high of 3% last month, but in light of the European Central Bank’s (ECB) current dovish stance it failed to provide much lift for the single currency.

What’s coming up?

Turning to this week’s session, it seems safe to assume that the spotlight will be on the Federal Reserve, as it delivers its latest interest rate decision.

While interest rates will remain on hold this month, the Fed could provide more clarity on its plans to begin tapering its bond purchases, which could send the US dollar sharply higher.

The Bank of England (BoE) will also conclude its September policy meeting later this week. No major policy announcements are expected from the BoE this month, but a hawkish policy statement may bolster Sterling sentiment.

Finally, in focus for EUR investors this week will be the Eurozone’s latest PMI releases. Will robust activity in the bloc’s private sector extend some support to the euro?

Written by
Philip McHugh

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