The British Pound recovered on Thursday and managed to break above resistance at 1.87 as UK consumer spending surprisingly improved.
Indeed, retail sales jumped 0.8 percent in July versus a whopping 4.3 percent decline during the month prior. Looking at a breakdown of the index, spending trends appear to be evolving in a manner similar to that of the US, as consumers divert spending away from department stores and discretionary items to discount stores and necessities. However, according to comments by the Bank of England last week, the central bank doesn’t have much faith in these official numbers and as a result, I don’t either. In fact, the BOE said they placed “a rather greater weight than usual” on survey data since it was a less volatile measure. The latest survey numbers – BRC retail sales – showed a 0.9 percent drop in same-store sales in July from a month earlier, which sounds a bit more believable as the UK economy slows dramatically. Looking ahead to Friday, the second reading of UK GDP for the second quarter will be released, and the annual rate is anticipated to be revised down to a more than 15-year low of 1.5 percent from initial estimates of 1.6 percent. A reading in line with expectations shouldn’t be too market-moving, but if GDP misses forecasts, choppy price action for GBP/USD should ensue.