GBP / USD bounce fades despite rising retail sales in June

Key discussion points:

  • GBP / USD cannot sustain bullish momentum
  • Retail sales increase in June while social spending increases with Euro 2020

GBP / USD was unable to follow the two-day rally from recent lows despite a good reading of retail sales this morning. pair managed to bounce off the Fibonacci retracement level of 23.6% (1.3577) on Tuesday after a downside move saw the pair hit its lowest level in 5 months as the US dollar was recovering the app of safe haven.

GBP / USD Daily Cheart

latest reading this morning saw retail sales grow 0.5% in June, above expectations of 0.4% and a big improvement from the unexpected 1.4% drop in May. annual figure is also 0.1% above expectations to 9.7%, but major retail sales have not met analyst estimates, suggesting that energy and food sales have been a important driver for June, which would be in line with the reopening of the hotel sector and the increase in outdoor consumption due to the EURO 2020 football championship.

But concerns about the rise of new Covid-19 variants and a possible new wave of infections could weaken consumer confidence in the future, potentially holding back retail sales in the coming weeks. This is also translating into markets, as investors remain cautious about the magnitude of the current economic recovery given the resurgence of new cases in many parts of the world, despite ongoing and successful vaccination campaigns.

This likely means that we will continue to see GBP / USD trading sideways with a negative bias, as the repositioning of the US dollar points to stronger flows in the coming weeks. If sentiment continues to creep, the pair could drop below 1.36 once again, with a clear possibility that sellers will take it further lower towards 1.34, although any further weakness is likely to be transitory. On the upside, 1.38 is likely to be an area where price pressures converge, so a significant breakout to the upside is likely to be difficult to achieve.

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– Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on @HathornSabin

Read also Australia New South Wales reports 642 additional locally acquired covid cases

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