Looking for more opportunities to trade the news this week?
Here’s another potential catalyst for GBP pairs!
The U.K. June retail sales report is comin’ right up, so let’s see what market watchers are expecting and how the pound might react.
Event in Focus:
U.K. retail sales data for June 2023
When Will it Be Released:
July 21, 2023 (Friday), 6:00 am GMT
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Expectations:
- Headline retail sales m/m: +0.2% expected vs. +0.3% previous
Relevant Data Since Last Event/Data Release:
- June BRC retail sales monitor rose from 3.7% y/y to 4.2% vs. estimated 4.6% increase, thanks to higher food sales and increased purchases of summer-related items
- June CBI realized sales index improved slightly from -10 to -9, short of -6 forecast, reflecting slower pace of decline in retail and wholesale volumes
- June GfK consumer confidence index rose from -27 to -24 vs. -26 consensus, reaching its highest level in 17 months as consumers showed resilience amid rising prices
Previous Releases and Risk Environment Influence on GBP
June 23, 2023
Overlay of GPB vs. Major Currencies Chart by TV
Event results / Price Action:
Retail sales data for May turned out better than expected, as the U.K. economy surprised with a 0.2% uptick instead of the estimated 0.3% decline. However, this was slower compared to the earlier 0.5% increase in consumer spending.
Prior to this, GBP pairs were already all over the place, as traders reacted to strong U.K. CPI data and the BOE interest rate decision.
The pound had a generally bullish reaction against majority of its forex peers after the release, with the exception of the U.S. dollar and Canadian dollar. From there, it managed to hold on to its gains versus the Aussie, Kiwi, and euro until the week came to a close.
Risk environment and intermarket behaviors:
Risk-off vibes were present for the most part of the week, as traders had been bracing for hot inflation data and potentially tighter monetary policies that could increase the odds of a recession.
Higher-yielding currencies like the comdolls were already on shaky footing since Chinese growth forecasts were downgraded over the weekend.
A quick risk rally ensued midweek when the Fed seemed sketchy about the timing of future rate hikes, but risk aversion soon returned when global flash PMI readings turned out mostly downbeat.
May 26, 2023
Overlay of GBP vs. Major Currencies Charts by TV
Event results / Price Action:
The April retail sales report beat market estimates by posting a 0.5% month-over-month gain in consumer spending versus the projected 0.3% uptick. However, the earlier figure was downgraded to show a steeper 1.2% fall from the initially reported 0.9% drop.
Still, GBP pairs had a steady bullish reaction to the actual readings, even extending its rallies versus the yen and Kiwi until the end of the trading week.
Stronger than expected U.K. CPI data printed on Wednesday helped lift sterling’s spirits then, even after seeing downbeat flash manufacturing PMI figures on Monday.
Risk environment and intermarket behaviors:
Consolidation was the name of the game during this trading week since market watchers were on edge while U.S. debt ceiling talks were ongoing.
Risk-off flows picked up when negotiations broke down in Biden’s absence over the weekend, prompting Treasury Secretary Yellen to reiterate that the June 1 deadline is fast-approaching.
Equities had a bit of a reprieve on Thursday, but traders were in no mood to take on risk after Fitch decided to put the U.S. on “negative watch.”
Price action probabilities:
Risk sentiment probabilities:
We’ve still got a pretty busy economic calendar ahead, but arguably, broad risk sentiment is likely to be mainly influenced on Thursday with the weekly round of U.S. initial jobless claims data (242K forecast vs. 237K previous; continuing claims to rise to 1.732M vs. 1.729M), which has had noticeable short-term impacts on broad markets.
Signals of the U.S. employment sector softening as expected may spark risk-on flows as that has tended to draw in less hawkish Fed speculation over the past few months and vice versa.
British pound scenarios:
Potential Base Scenario:
Leading indicators are hinting at a decent pickup in retail sales for June, reminding pound traders of the resilience in the consumer sector.
In this case, bulls might be more willing to take back some of the bearish Sterling vibes priced in this week as retail sales strength likely gives the BOE more leeway to keep tightening monetary policy.
With that, look out for a quick GBP rally against lower-yielding currencies like USD, CHF, JPY if markets are leaning risk-on. JPY will also be releasing inflation updates on Friday, so be wary of likely elevated volatility in GBP/JPY around that time.
Potential Alternative Scenario:
A disappointing retail sales figure for June could once again remind traders that the BOE interest rate hikes are discouraging consumers from spending, and possibly spur reductions in rate hike bets from FX traders. In this scenario, focus efforts on finding solid short-term short GBP plays. Again, risk-on sentiment is the current environment expectation for the latter half of the week, and in that scenario, look for solid setups against AUD, NZD, and CAD.
The EUR should be considered as well as their central bank rhetoric remains hawkish on rate hikes this month, but after a massive move higher in EUR/GBP this week, a bullish reaction has elevated odds of being a limited move.
If risk-off sentiment is in play, then check out Sterling against safe-havens and lower-yielding counterparts (USD, JPY, CHF), especially JPY if Friday’s Japanese CPI data came in above expectations and sparked buying in the Japanese yen.