UK Retail Sales is due for release tomorrow at 6 am GMT. Monthly UK Retail Sales consensus estimates are for a drop to -15.8%, down from the -5.1% drop the previous month as the coronavirus lockdowns continue to ensure that retail activity in the UK remains at deficient levels. It is instructive to note that so far, the British Pound has not collapsed under the pressure of previous dismal high-impact news releases. Will it stand up to tomorrow’s number if it comes in at a worse level than expected?
For answers, we look at the sentiment around the Pound for the week. The CPI number fell to an annualized figure of 0.8%, which was worse than the markets had predicted. As a result, markets have started to price in the chances of the Bank of England instituting a negative interest rate regime. Data also shows that the UK is yet to contain its internal coronavirus situation, as the number of deaths has started to climb once more. There are ongoing Brexit concerns about no agreement being reached by deadline day 2020.
Despite limited upside this week, the Pound continues to remain under pressure from last week’s woeful performance against the US Dollar following the GDP contraction. It is against the backdrop of these influences that the UK retail sales will be released tomorrow.
The annualized number may provide additional insight to retail activity in the UK. The consensus for this is – 22.2%.
If the annualized number falls to -25.7% or the number is more negative than this, combined with a monthly figure of -20.9%, this may pressurize the GBPUSD because of an increase in probability this brings to the expectation that the BoE would send rates into negative territory. We may then see a breakdown of 1.22006, allowing the pair to perhaps cut through 1.21210 and aim for 1.20005. A breach of the psychological support at 1.20000 could bring 1.18810 into focus as the new target for sellers.
If the numbers hover around estimates, the status quo could remain, and the GBPUSD may not respond to the data. The pair would then be affected by prevailing sentiment around Brexit.
Better-than-expected figures of -10% or less negative for the monthly number or -15% on an annualized basis may be GBP-positive. The pair could then bounce from current support at 1.22006 towards the 1.23695 resistance (neckline of the previous double top) and perhaps stay there for the week.