The GBP/USD remains volatile amid Brexit jitters. After forming a bottom around 1.252 area, it is sharply higher as the USD weakened on dovish tilt by the U.S. Federal Reserve.
As Prime Minister Theresa May stepped down after failing to pass any of her negotiated agreement, the UK conservative party is currently in the process of electing the next Prime Minister. Former London Mayor Boris Johnson remains favorite for the post.
In recent weeks, the warning rhetoric from the Bank of England (BoE), continued tensions between the European Union and the UK over Brexit trade agreement, and weaker than expected economic dockets have pushed the pound lower against the dollar but quickly recovered as the USD weakened.
However, weaker than expected numbers from the UK real estate sector, as well as manufacturing pose concerns.
The focus for today is on UK retail sales, which has been relatively stronger. The report will be released at 8:30 GMT.
May retail sales preview:
- As said, this report would be vital in supporting the sterling. If the sales remain strong it would be an indication that people are willing to spend money, despite the uncertainties surrounding Brexit. However, it has shown weakness in 2018.
- After the crisis of 2008/09, the retail sales started to recover and the growth rate reached a level much higher than it was before the crisis. In August 2016, retail sales growth reached 6.6 percent. Compared to that, September was weaker with 4.1 percent y/y growth. In October, retail sales hit the highest level of growth for the year 2016 to 7.4 percent.
- However, growth has weakened since. But started recovery since May 2018. See chart
Expectations today:
- UK retail sales are expected to grow by 2.7 percent y/y in May but decline by 0.5 percent on a monthly basis. In April, growth was 5.2 percent y/y.
Weaker than expected report would lead to a further selloff in the pound. However, the current short-term bias remains to the upside thanks to the dollar’s weakness. The pound is currently trading at 1.272 against the USD.
