The British pound has had a relatively quiet week, hovering around the 1.27 mark against the US dollar. Currently, GBP/USD is trading at 1.2715, showing a slight increase of 0.13% during the European session.
Recent data shows that UK retail sales took a hit in April, declining by 2.3% month-on-month. This sharp drop followed a revised 0.2% decrease in March and was much worse than the expected -0.4%. The poor performance was largely attributed to lower sales of gasoline and non-food items, as well as unfavorable weather conditions dampening consumer spending. On an annual basis, retail sales fell by 2.7%, missing the market estimate of -0.2%.
The weak retail sales figures have raised concerns about the state of the UK economy. While the economy showed strength in the first quarter, with GDP rising by 0.6% quarter-on-quarter, the disappointing retail sales may signal a slowdown in the second quarter. This could prompt the Bank of England to consider lowering the current cash rate of 5.25% in order to stimulate economic activity. With inflation dropping to 2.3% in April, nearing the 2% target, speculation is mounting that the BoE may start cutting rates as early as August.
In contrast, the US saw improvements in its services and manufacturing sectors in May. The services Purchasing Managers’ Index (PMI) rose to 54.8, up from 51.3 in April, marking the highest level in a year and indicating improved business activity despite high interest rates. While manufacturing remains weak, the PMI increased from 50.0 to 50.9, suggesting modest growth.
On the technical side, GBP/USD is currently testing resistance at 1.2710, with further resistance levels at 1.2736. Support levels are seen at 1.2674 and 1.2648.
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