GBP/USD jumps back to session tops post-UK retail sales

Pound euro exchange rate Sterling drops again

Pound euro exchange rate Sterling drops again

GBP/USD pares the decline from earlier this week as United Kingdom household spending expands 0.9% in July, and signs of stronger consumption may keep the Bank of England (BoE) on track to further normalize monetary policy as 'recent data appear to confirm that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter'. Both retail sales figures excluding fuel were also much better than forecast.

The UK total retail sales increased 0.7 percent over the month in July after slumping unexpectedly in June.

Similarly, the yearly retail sales figure was forecast to edge higher from 2.9% to 3% but instead jumped to 3.5%.

According to the Office for National Statistics' (ONS) report, the bounce in consumer activity was due to the ongoing heatwave in the United Kingdom, as well as the 2018 World Cup.

In turn, the BoE may continue to strike a hawkish tone at the next meeting on September 13 as 'an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon, ' but Governor Mark Carney & Co. appear to be in no rush to deliver another rate-hike in 2018 as 'the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of European Union withdrawal'.

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Some continued weakness in high street retailers was offset by the strength of online retail activity.

However, since Wednesday efforts from Turkey's government to cool markets have started to have an effect and the Turkish Lira has recovered from its worst levels. But with the Bank of England appearing in no hurry to raise interest rates again and the market growing increasingly concerned over a "no deal" Brexit, the Pound is finding gains hard to come by, and any rally is struggling to be sustained.

On top of that, Thursday saw the publication of the Eurozone's June trade surplus update, which was stronger than expected and gave the Euro further support.

Heaping even more pressure on the Lira is the current diplomatic spat between Washington and Ankara, with the United States imposing higher steel tariffs on Turkey over the detainment of American pastor Andrew Brunson, which analysts also suggest must be solved if TRY has any chance of sustaining a recovery. Barring any further gyrations in oil prices, we think July's figure represents a peak, and we expect CPI to begin trending downwards over the next few months gradually.

Notably, the Eurozone's yearly core inflation rate is forecast to have climbed from 0.9% to 1.1%. If Eurozone inflation disappoints investors, the Pound to Euro (GBP/EUR) exchange rate could still end the week slightly higher.

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