UK Retail Sales Contracted in December, GBP/USD Drops

UK Retail Sales, GBP/USD Analysis

• UK retail sales contracts at fastest monthly rate since the Covid affected period of January 2021
• Choppy GBP/USD price action remains undeterred – highlighting key horizontal levels
• Bank of England rate decision presents the next major event risk on the horizon
• Take a look at our brand new Pound Sterling Q1 forecast below:

UK retail sales fell 2.4% in December 2023 when compared to the same month in 2022, led by notable declines in both food and non-food store volumes as consumers feel the effect of higher interest rates.

Non-store retailers (mainly online retailers) also witnessed a drop in sales volumes by 2.1%, but unlike the above-mentioned segments, online stores came off a 1.1% drop in November.

December’s decrease was the largest monthly fall since January 2021 when covid restrictions affected sales.

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GBP/USD Immediate Response

Sterling lost a bit of ground early this morning in the wake of the report, dropping around 30 pips over a 90 minute period.

GBP/USD 5-Minute Chart

Source: TradingView, prepared by Richard Snow

Choppy GBP/USD Price Action Remains Undeterred

GBP/USD has developed even further into this trend of sideways price action, although, the peak and trough provide a decent bit of mileage to work with. Picking a direction in the pair has therefore been difficult, with a more prudent approach to consider entries near key horizontal levels that have thus far contained the majority of price action since mid-December.

The two major levels here are 1.2794 and 1.2585. The most recent move came after the UK employment rate held steady but more importantly UK inflation ticked higher. A lift in inflation has been seen in the UK, US and EU but appears to have aided sterling recently.

GBP/USD tested the underside of the trading range at 1.2585 before the economic data provided a boost, seeing the pair above both the 50 and 200-day simple moving averages (SMA). Continued bullish momentum appears like a major challenge as the US dollar has regained some lost ground after treasury yields successfully halted prior declines this week. Fading upside momentum is rather notable on the MACD indicator, revealing a steady decline.

With all of this considered, range trading remains a prudent approach – underscoring the importance of key horizontal levels and relative effectiveness of economic data to provide a catalyst in one direction or another. The next major event is the Bank of England rate decision in the 1st of February.

GBP/USD Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX