FxWirePro: Retail sales report is focus as pound remains upbeat after better unemployment report

The pound is up against the dollar considerably since 2017 but its performance has been relatively weak compared to its other major trading partners. Since 2017, the pound has increased by 17.9 percent but the single currency increased by almost 20 percent.

In recent weeks, the hawkish rhetoric from the Bank of England (BoE), a primary agreement between the European Union and the UK over 21-month transition agreement, and better than anticipated unemployment numbers have pushed the pound higher against the dollar. However, the numbers from UK real estate sector, as well as manufacturing have been pretty weak.

The focus for today is on UK retail sales, which was pretty weak last month. The report will be released at 9:30 GMT.

February retail sales preview:

• As said, this report would be vital for the support in the sterling. If the sales remain strong it would be an indication that people are willing to spend money, despite the uncertainties surrounding Brexit. People understand that Brexit would be a long process, hence that shouldn’t affect their purchases immediately but higher inflation likely to add to the cost.
• However, there is a saying that, when Britons are happy, they shop, but when they are sad, upset or tense they shop more. Retail sales figures, released since the Brexit referendum support this saying.
• 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. See chart

Expectations today:

• UK retail sales are expected to grow by 1.3 percent y/y in February and by 0.4 percent on a monthly basis.

The pound is currently edging higher after yesterday’s encouraging unemployment report. It is currently trading at 1.415 against the USD.