GBP/USD: Gains to be limited following stronger than expected UK retail sales – MUFG

GBP/USD: Gains to be limited following stronger than expected UK retail sales – MUFG UK retail sales data has come in stronger than expected for the month of July, in data released this morning underlining the recovery that took hold in May. The GBP/USD pair held on to its modest gains near session tops, around the 1.3240-50 region and moved little following the release of the UK macro data, now trading at 1.3230. This UK data is positive for the pund but gains should be limited from here, according to economists at MUFG Bank.

Key quotes

“The index for overall retail sales has now more than fully retraced the 22.3% plunge in sales recorded in March and April. Total retail sales as of July is now 3.8% higher than the end of 2019. What today’s data indicates is that the unprecedented policy support that was implemented by the government has played a huge role in reversing the two-month collapse in retail sales.” “Of course, the other obvious story here is the shift in spending habits – the index for non-store retail sales is up 47.6% on a year-to-date basis. While this is supportive for GBP and given the general weakness of USD, further gains for cable over the short-term are possible. But there will be an obvious high level of caution in reading too much into this impressive performance. Earlier today we also had data on consumer confidence. The GfK Consumer Confidence index for August remained unchanged at -27 – two months of gains in June and July ended with concerns amongst consumers over the outlook for employment a key factor.”

  “The other data released this morning highlights why the government will be very reluctant to halt the reversal of the furlough program and extend this very expensive scheme. Total UK government debt surpassed GBP 2trn for the first time. The more important milestone was debt surpassing 100% of GDP for the first time since the early 1960s.” “When you add the failure of the UK-EU trade talks to advance much this week there are plenty of hurdles for the pound over the coming months. The latest round of talks wrap up today and if these media reports are accurate we will not be getting good news from David Frost or Michel Barnier in their respective press conferences. Time is running out and the potential grim couple of months ahead as the furlough scheme reverses coupled with UK-EU trade talks gridlock will we believe limit the scope for further GBP gains from here.” GBP/USD: Gains to be limited following stronger than expected UK retail sales – MUFG