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GBP Analysis and Talking Points

  • UK retail sales posts another sizeable rebound amid royal wedding celebrations
  • GBPUSD regains firm footing above 1.34

See our Q2 GBP forecast to learn what will drive the currency through the quarter.

Royal Wedding Fever Lifts Consumer Spending

Another sizeable rebound in UK retail sales for May, which saw all metrics printed ahead of expectations, subsequently, this took GBP too session highs against its major counterparts. The headline monthly reading surged 1.3% (Exp. 0.5%), while there was also an increase in the core reading of 1.3% (Exp. 0.3%). The ONS stated that the bounce in retail sales was due to good weather, alongside the royal wedding celebrations resulting in a boost on food and household goods.

The better than expected figures have helped GBPUSD maintain a firm footing above the 1.34 handle, in a week where GBP has been mired by Brexit uncertainties and soft productivity data at the beginning of the week. A continued rebound in consumer spending helps keep a rate hike in August alive, however, the state of the retail sector does remain fragile, while real earnings continues to remain subdued and relatively low (currently 0.4%), which may suggest that a rate hike in August may be too soon, with November potentially a more viable option. This has been reflected in money markets with pricing for an August rate hike at 40%.

GBPUSD Rises as Royal Wedding Celebrations Lifts Retail Sales

Source: Thomson Reuters (Bank of England Rate Hike Expectations)

GBPUSD CHART: 1-HOUR TIME FRAME (June 1st – 14th)

GBPUSD Rises as Royal Wedding Celebrations Lifts Retail Sales

Chart by IG

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX