Pound rises amid robust retail data

The pound found some success on Friday after UK retail sales smashed forecasts.

So far, Sterling is muted this morning, with GBP/EUR rangebound at €1.1508 and GBP/USD similarly wavering at $1.2711. GBP/CAD is edging lower at CA$1.6770, while GBP/AUD is down at AU$1.8599 and GBP/NZD is flat at NZ$2.0086.

Looking ahead, will a light data calendar restrict the major currencies?

What’s been happening?

Friday saw the pound strengthen significantly at the beginning of the European session, despite mixed economic data.

Retail sales in November printed substantially higher than anticipated, having improved by 1.4% on a monthly basis. This eclipsed forecasts of a 0.4% increase, bringing cheer to GBP investors and strengthening Sterling.

However, these gains were capped by a shock downward revision to the UK’s Q3 GDP data. Over the third quarter, the UK economy contracted by 0.1%, sparking concerns that the UK could be facing a technical recession.

The US dollar, meanwhile, struggled to find support following a cooler-than-expected core PCE price index. The Federal Reserve’s preferred gauge of inflation decelerated to 3.2%, below forecasts of 3.3%.

This added further fire to growing expectations that the Fed will begin to cut interest rates at the beginning of 2024.

Elsewhere, the euro remained muted as macroeconomic data was in short supply.

What’s coming up?

Looking, ahead data releases are few and far between for all three currencies. As such, movement may be limited during the day’s trade due to a lack of catalysts.

Focus may remain on the Bank of England’s (BoE) path forward for the pound.

If interest rate cut bets continue to ramp up, GBP may be unable to gain an advantage over its peers. However, if expectations remain that the BoE will begin to unwind its previous tightening later than other banks, GBP could strengthen.

Meanwhile, a possible ‘Santa rally’ in the markets could pressure the safe-haven US dollar. Risk sentiment has improved in recent weeks amid hopes that the Federal Reserve will achieve a soft landing with monetary policy.

Elsewhere, the lack of data is likely to keep the euro restricted.