Retail sales figures likely to support strong pound

The pound has been a top performer since November among all of its peers. Since November, the euro has declined by 4.6 percent, the yen has declined 12.4 percent, and franc has declined 3.6 percent. In all the cases, the decline accelerated after Donald Trump secured victory in the US election. Compared to the above, the pound is up by 2.2 percent.

While all the major and commodity pairs are feeling the wrath of the dollar, after US Federal Reserve hiked interest rates last night, the performance of the pound might improve with a better than expected retail sales figures.

November 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 understands that Brexit would be a long process, hence that shouldn’t affect their purchases immediately but the weakening of the pound 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 current growth rate is much higher than it was before the crisis. In August, 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.

Today, it is expected a bit weaker at 5.9 percent y/y and 6.1 percent y/y excluding fuel.

There is a strong possibility that the pound might rise further from the current price of 1.252 against the dollar and test key resistance around 1.275 area. This quest would become easier for the pound once the dollar starts retracing some of the gains.