Pound Sterling surges as UK Retail Sales unexpectedly increased by 0.3%

The Pound Sterling (GBP) outperformed its major peers on Friday, driven by stronger-than-expected UK Retail Sales data for September. Retail Sales, a key indicator of consumer spending, increased by 0.3%, contrasting with economists' expectations of a 0.3% decline month-on-month. Year-over-year, consumer spending grew at a robust 3.9%, surpassing estimates of 3.2% and the revised August figure of 2.3%.

The report indicated that overall sales were bolstered by higher receipts at non-food stores and department stores, according to the ONS.

The positive Retail Sales data is likely to temper expectations for interest rate cuts by the Bank of England (BoE) in its remaining two meetings this year. Markets had begun to factor in such cuts after Wednesday’s Consumer Price Index (CPI) data for September revealed that inflation had fallen more than expected, dropping below the BoE's 2% target.

Inflation in the services sector—a key focus for BoE officials—eased to 4.9%, the lowest level since May 2022. This reduction in price pressures has boosted traders’ confidence that inflation is becoming more manageable.

Daily Digest Market Movers: Pound Sterling Recovers Sharply Against the US Dollar

• The Pound Sterling surged to nearly 1.3050 after bouncing back from the psychological support level of 1.3000 against the US Dollar on Friday. The GBP/USD pair gained ground as the USD struggled to extend its five-day winning streak, with the US Dollar Index (DXY) dipping to around 103.65 from Thursday's high of 103.87, the strongest level in over 10 weeks.
• The outlook for the Greenback remains positive, as traders appear to be betting on gradual interest rate cuts from the Federal Reserve (Fed) rather than aggressive moves. According to the CME FedWatch tool, the 30-day Federal Funds futures pricing indicates a 50 basis point decline in interest rates for the remainder of the year, suggesting cuts of 25 basis points in both November and December.
• Meanwhile, strong US monthly Retail Sales and lower weekly Jobless Claims have reinforced confidence in the economy. Retail Sales increased by 0.4% in September, exceeding estimates of 0.3%. Additionally, initial jobless claims came in at 241K, below the expected 260K.
• In addition to the positive data and growing speculation about the Fed's gradual rate cut path, rising expectations for a Trump presidential win have bolstered the US Dollar. Market participants anticipate that a Trump 2.0 administration would lead to higher import tariffs, tax cuts, and looser financial conditions, all seen as favorable for the US Dollar.

Technical Analysis: Pound Sterling Returns Above 1.3000

The Pound Sterling found strong buying interest near the psychological support level of 1.3000 during Friday’s London session. The GBP/USD strengthened after moving above the 100-day Exponential Moving Average (EMA), which is around 1.2990.

The 14-day Relative Strength Index (RSI) has quickly returned to the 40.00-60.00 range after briefly slipping below, indicating that value-buying has emerged.

Looking ahead, the upward-sloping trendline from the April 22 low at 1.2300 serves as significant support for Pound Sterling bulls near 1.2920. On the upside, resistance for the Cable is expected around the 20-day EMA at approximately 1.3120.