GBP/USD Dragged Lower by Weak Retail Sales, Ongoing Political Turmoil
- Civil servants ‘party gate’ report to be released next week.
- UK retail sales miss expectations by a sizeable margin.
The political pressure on UK PM Boris Johnson continues unabated with media reports that Boris Johnson knew that the Downing Street party he attended was a social event and not a work event, implying that he lied to Parliament. The civil servant in charge of the ‘party gate’ investigation is said to have a copy of an email that raised concerns over the event described as ‘socially distanced drinks’. If the report, expected next week, finds that Boris Johnson did know that the party was not a work event, then his position will become increasingly untenable. The PM told Parliament last week that he had attended the event and ‘believed implicitly’ that it was a work event.
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UK retail sales for December dropped sharply, data released by the Office for National Statistics (ONS) showed today, falling by 3.7% compared to expectations of a 0.6% fall. The UK high street was hit by the sudden spread of the omicron virus and the resultant lockdown measures. Non-food stores sales volumes fell by 7.1%, while automotive fuel sales volumes fell by 4.7% due to increased working at home.
While the ongoing political turmoil and today’s retail sales figures have dented Sterling, along with the global risk-off move, the move lower will likely be limited ahead of the Bank of England (BoE) monetary policy meeting on February 3. Current market pricing suggests that the central bank will hike rates by 25 basis points at this meeting, pushing the base rate to 0.50%. Further rate hikes are expected during the year as the BoE looks to dampen down rampant domestic inflation. This background of tightening monetary policy will buttress Sterling in the months ahead.
In the short-term GBP/USD may edge lower if it breaks below the recent resistance turned support trend line off the June 1 high. Cable has already broken this trend but is now retesting this support around 1.3555. A confirmed break lower, leaves 1.3500/15 as the next level of interest, while a further bearish turn would bring 1.3412 into play.
GBP/USD Daily Price Chart – January 21, 2022
Retail trader data 46.71% of traders are net-long with the ratio of traders short to long at 1.14 to 1. The number of traders net-long is 2.70% lower than yesterday and 13.57% higher from last week, while the number of traders net-short is 4.45% lower than yesterday and 20.26% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net-short.
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