- UK retail sales data weighed on the pound.
- The Bank of England is still undecided about a rate hike.
- Fed’s hawkish rate hike plan drives the market.
After UK retail sales data for March failed to show that inflation is biting consumers’ wallets, the British pound futures (6B) fell to major levels during the session. The 6B is trading at its lowest level since November 2020’s Covid lockdown, below the 1.2900 level.
Dismal UK retail sales
The UK production numbers have surpassed estimates, but attention is focused on the number of services that have disappointed. The British pound fell 1.23% during the session as the services index came in at 58.3 versus an expected reading of 60.
According to the report, “high prices and the associated increase in the cost of living have often been cited as factors contributing to the decline in demand, with the decline continuing to affect many businesses.” Further obstacles to export sales were Brexit and transport delays, while the war in Ukraine and Russian sanctions also impacted foreign trade.”
Bank of England
Although the Bank of England still expressed concerns about the current inflation and growth conditions, the sterling’s decline yesterday was more limited. The first member of the Bank of England to leave yesterday was Kathryn Mann. Mann said the Bank of England should raise rates by 25 basis points or more depending on whether inflation expectations remain unchanged and expected consumer spending, which may close the cycle of expectations.
Ella Mann explained that her decisions are heavily driven by data and that the data she is concerned about is the forward inflation expectation index. The retail sales report for today, which showed core sales fell 1.4%m/m in March, should support Mann’s hypothesis that falling consumption should limit companies’ ability to raise prices too aggressively, thereby containing inflation.
Today’s fall in the British pound (6B) reflects this as well as a likely repricing in the UK rates market, as evidenced by the 2.5 basis point drop in 2-year yields after the market opened this morning. In addition to Mann, Governor Bailey also discussed the precarious state of the British economy.
Fed’s rate hike plan
On Thursday, Fed Chair Powell confirmed that interest rates will rise by more than 25 basis points. Fear of rising interest rates weighed on sentiment and supported safe-haven measures.
British pound futures (6B) daily open interest
On Thursday, the British pound (6B) slightly dropped while the daily open interest slightly rose. It shows that the bias is bearish.
British pound futures (6B) technical analysis: Bears eying fresh lows
The British pound futures (6B) plummeted below the 1.2900 area, marking fresh multi-month lows around 1.2850. The volume for the down bar is very high. It shows that the bearish trend is very strong. However, the price has corrected higher after a huge dip. The 1.3000 level remains a pivot point. If the price gains above 1.3000, the bearish bias will turn into neutral.