The British pound continued to rise on Friday, with GBP/USD trading at 1.3046, up 0.27% for the day. This increase in value is attributed to the stronger-than-expected UK retail sales data for September. Retail sales saw a 0.3% month-on-month increase, marking the third consecutive monthly rise. Annually, retail sales climbed by 3.9%, the largest increase since February 2022.
The positive retail sales report comes at a crucial time, as Finance Minister Reeves is set to present the Annual budget on Oct. 30. Reeves has already hinted at “tough measures” in the budget, which could include spending cuts and tax hikes. With consumers already cutting back on discretionary spending, a tough budget could further dampen consumer sentiment.
On the other side of the Atlantic, the US also saw a solid increase in retail sales for September, driven by lower gasoline prices. Retail sales in the US rose by 0.4%, surpassing the market estimate of 0.3%. Annually, retail sales eased to 1.7%, still above the forecast of 1.6%.
The strong retail sales data from both the UK and US is a positive sign for third-quarter growth, which could support the case for the Federal Reserve to deliver quarter-point rate cuts in November and December. The Fed had previously cut rates by 50 basis points in September, but a large rate cut like that is not expected to be repeated unless there is a significant downturn in economic data.
In terms of technical analysis, GBP/USD is currently testing resistance at 1.3016, with the next resistance level at 1.3076. On the downside, support levels are seen at 1.2963 and 1.2903.
Overall, the positive retail sales data from the UK and US is a good indicator of economic strength, but the looming budget announcement in the UK and potential rate cuts by the Fed could introduce some uncertainty in the forex market in the coming months. Investors will be closely monitoring these developments to gauge their impact on currency movements.
