British Pound steadies near one-month highs despite downbeat UK Retail Sales data

• GBP/USD flatlines near 1.3390 after ticking down from one-month highs above 1.3400 on Thursday.
• UK Retail Sales fell well below expectations in September, while August's data was revosed higher.
• The US Dollar remains on the defensive, amid lower US yields, dwindling hopes of Fed moneary tightening.

The British Pound (GBP) is trading practically flat against the US Dollar (USD) on Friday, hardly affected by the weak retail consumption data released earlier in the day. The GBP/USD pair flatlines near 1.3390, just below the monthly high at 1.3419 hit on Thursday, supported by market expectations of an immediate interest rate hike by the Bank of England.

UK Retail Sales dropped 0.4% in September, according to data released by the UK Office for National Statistics, largely exceeding the 0.1% decline expected by the market, while August’s data was revised to a 0.7% growth from the 0.5% increase previously estimated.

The core Retail Sales, which exclude motor and fuel sales, also fell beyond expectations, 0.7% down in September, against the -0.1% market consensus. Year-on-year, sales grew 0.8% in both cases, undershooting the 1% and 1.5% respective market consensus.

Strong inflation data has cemented hopes of a BoE rate hike in November

The Pound has been one of the stronger performers among the major currencies this week. The hot UK Consumer Price Index (CPI) data released on Wednesday added to evidence of the steady inflationary effect of the high Oil prices and boosted hopes that the BoE will be forced to tighten its monetary policy at the November 5 meeting.

The US Dollar, on the other hand, has remained on its back foot this week with investors assuming that the Federal Reserve (Fed) will leave interest rates on hold at next week’s meeting. Beyond that, US long-term yields have dropped sharply, as growing concerns about an AI bubble have sent investors rushing to the safety of US Government bonds, ultimately easing pressure on the Fed to tighten its monetary policy. 

Analysts at ING expect foreign exchange to “keep a very close watch on the short end of the US curve now." They point out that "expectations for further Fed tightening have stayed rock-solid at around +75bp over recent weeks," but warn that "any tech wobble that prompts a dovish re-pricing at the short end could lead to a broader Dollar correction."