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Here’s another potential catalyst for GBP pairs!
The UK’s June retail sales report is approaching, so let’s see what market watchers can expect and how the pound might react.
Focus on the event:
UK retail sales data for June 2023
When will it be released:
July 21, 2023 (Friday), 6:00 AM GMT
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
- Core Retail Sales MoM: +0.2% expected vs. +0.3% previously
Related data since the last data event/release:
- Retail Sales Monitor for June BRC It rose from 3.7% year-on-year to 4.2% versus an estimated increase of 4.6%, thanks to higher food sales and increased purchases of summer-related items
- June achieved CBI sales index A slight improvement from -10 to -9, below the -6 forecast, reflecting a slower pace of decline in retail and wholesale volumes.
- GfK Consumer Confidence Index for June It rose from -27 to -24 against the -26 consensus, reaching a 17-month high as consumers showed resilience amid rising prices.
Previous issues and the impact of environmental risks on the pound sterling
June 23, 2023
Event Results/Price Action:
Retail sales data for May came in better than expected, surprising the UK economy with a 0.2% rise instead of the expected 0.3% decline. However, this was slower than the previous 0.5% increase in consumer spending.
Prior to this, GBP crosses were already all over the place, as traders reacted to the strong UK CPI data and BoE interest rate decision.
The pound had a generally bullish reaction against the majority of other foreign currencies after the release, with the exception of the US dollar and Canadian dollar. From there, it managed to sustain its gains against the Australian and New Zealand dollars and the euro as the week came to a close.
Risk Environment and Internal Market Behaviors:
Risk aversion was present for most of the week as traders braced for hot inflation data and tighter monetary policies that could increase the odds of a recession.
Higher-yielding currencies like the US dollar have been on shaky footing already since China’s growth forecast was downgraded over the weekend.
A quick risk-off rush ensued in the middle of the week when the Fed appeared vague about the timing of future rate hikes, but risk aversion quickly returned when it became clear that global PMI readings were mostly pessimistic.
May 26, 2023
Event Results/Price Action:
The April retail sales report beat market estimates with a 0.5% m/m increase in consumer spending versus the expected 0.3% rise. However, the previous rating was downgraded to show a sharp decline of 1.2% from the initially reported decline of 0.9%.
However, the GBP crosses had a consistent bullish reaction to the actual readings, even continuing to advance against the Yen and New Zealand until the end of the trading week.
Stronger-than-expected UK CPI data released on Wednesday helped lift sterling’s sentiment at the time, even after seeing downbeat manufacturing PMI numbers on Monday.
Risk Environment and Internal Market Behaviors:
Consolidation was the name of the game during this trading week as market watchers were on edge while US debt ceiling talks were under way.
Risk-off flows rebounded when negotiations collapsed in Biden’s absence over the weekend, prompting Treasury Secretary Yellen to stress that the June 1 deadline is fast approaching.
Stocks saw some delay on Thursday, but traders were in no mood to take risks after Fitch decided to put the US on a “negative” watch.
Price action odds:
Possibilities of feeling risky:
We still have a very busy economic calendar, but arguably, overall risk sentiment will likely be affected mainly Thursday with the weekly round of US Initial Jobless Claims (242k forecast vs. 237k prior; claims continuing to rise to 1.732m vs. 1.729m), which had noticeable short-term effects on the broad markets.
Signs of weakness in the US employment sector may as expected lead to risk flows as they tend to attract less hawkish Fed speculation over the past few months and vice versa.
Scenarios for the British pound:
Possible base scenario:
Leading indicators point to a decent recovery in retail sales for the month of June, reminding sterling traders of the resilience in the consumer sector.
In this case, the bulls may be more than willing to relive some of the negative sterling sentiment that has been priced in this week, as strength in retail sales is likely to give the BoE more latitude to continue to tighten monetary policy.
With that said, look for a quick rally in the pound against lower-yielding currencies like the US dollar, Swiss franc, and Japanese yen if the markets are risk-averse. The Japanese Yen will also be releasing inflation updates on Friday, so beware of the potential higher volatility in the GBP/JPY at that time.
Possible alternative scenario:
The disappointing retail sales figures for June could once again remind traders that the Bank of England’s rate hike is discouraging consumers from spending, possibly spurring cuts in rate hike bets from forex traders. In this scenario, focus efforts on finding strong short-term GBP trades. Again, risk sentiment is the current environment outlook for the latter half of the week, and in that scenario, look for strong setups against the AUD, NZD, and CAD.
The euro is to be considered as well as the central bank’s comments remain hawkish on rate hikes this month, but after the massive rally in EUR/GBP this week, the bullish reaction has raised the odds of it being a limited move.
If the risk-off sentiment is in play, check GBP against safe-haven currencies and lower-yielding counterparts (USD, JPY, CHF), especially the JPY if Friday’s Japanese CPI data comes in above expectations and sparks buying in the JPY.
