By Dan Blystone, Friday June 18th 2021 (9:00AM GMT)
The British pound entered a sixth consecutive day of losses against its US counterpart in early trading on Friday. A disappointing retail sales report, dampened optimism over recovery from the Covid-19 pandemic and broad strength in the US dollar after the Federal Reserve policy shift combined to pressure sterling to it’s lowest levels since May 6th.
On Friday morning, the UK Office for National Statistics (ONS) reported that retail sales fell 1.4% on a month-to-month basis in May, missing expectations for a rise of 1.6%. Year-over-year the rise was 24.6%, also missing analyst forecasts of 29.0%. The ONS said that the easing of hospitality restrictions led to consumers eating and drinking out at restaurants and bars rather than spending money at supermarkets.
Confidence was shaken after the NHK World reported over 11,000 Covid-19 cases in 24 hours. The news marked the the first time since late February that the figure rose about 10,000. The UK is now excluded from the European Union’s safe travel list. The pound has been boosted in recent months by a successful vaccination rollout and rising expectations of a Bank of England interest rate hike.
On Wednesday the Federal Open Market Committee kept its benchmark interest rate close to zero, as expected. However, the Fed stated that most of its officials anticipate a rate rise in 2023, contrasting earlier predictions of a hike coming in 2024. Jerome Powell confirmed that the Fed will give advance notice before announcing a decision regarding a tapering of asset purchases and said “You can think of this meeting that we had as the ‘talking about talking about’ meeting, if you’d like.” The US dollar rallied sharply on the heels of the news, marking its largest two-day gain of the year.
The market now eyes the BoE monetary policy meeting scheduled for next Thursday June 24th. Looking at the GBP/USD daily chart above we can see that potential support lies at the double bottom level of 1.3659 and that the line in the sand 200-period moving average sits just below.