The Pound Sterling (GBP) experienced a sharp decline as the United Kingdom’s Office of National Statistics (ONS) released disheartening Retail Sales data for December. The report revealed a significant contraction in UK household spending, attributed to the burdensome impact of elevated interest rates and consumer price inflation, exacerbating the ongoing cost-of-living crisis. Despite expectations that a sharp drop in high street sales would alleviate pressure on the persistently high inflation outlook, the impact proved insufficient to influence the overall economic landscape.
The noteworthy contraction in Retail Sales raised speculation about the likelihood of an early rate cut by the Bank of England (BoE). Despite the considerable dip in UK consumer spending, BoE policymakers are anticipated to maintain a cautious monetary policy stance until they are convinced that underlying inflation will return to the targeted 2% in a timely and sustainable manner.
Looking ahead, market participants are turning their attention to the forthcoming preliminary S&P Global PMI data for January, scheduled for release next week. With the UK Manufacturing PMI persistently contracting for over a year, the expectation is that it will continue facing challenges.
Technical Analysis: Pound Sterling Confronts Resistance at 1.2700
The Pound Sterling faced a sharp drop after encountering selling pressure near the crucial round-level resistance of 1.2700. The short-term outlook for the GBP/USD pair has turned less bullish, evidenced by its struggle to surpass the 20-day Exponential Moving Average (EMA) at around 1.2690. However, the 50-day EMA continues to provide support to Pound Sterling bulls.
The 14-period Relative Strength Index (RSI) is currently within the 40.00-60.00 range, indicating a consolidation phase with no apparent economic triggers in the near term. Traders will closely monitor these technical indicators as they navigate the evolving dynamics of the Pound Sterling in the midst of economic challenges and shifting market sentiments.
