The British pound edged higher on Friday, buoyed by stronger-than-anticipated retail sales data from the UK. Data released by the Office for National Statistics (ONS) showed that June retail sales rose by 1.0% month-on-month, significantly beating the 0.3% decline economists had forecast.
On an annual basis, sales surged 4.2%, nearly double the market consensus of 2.3%. This marks the fifth time this year that retail data has outperformed expectations. Combined with the GfK consumer confidence index posting its largest single-month jump of the year, the UK economy is displaying a rare alignment of political and economic momentum.
Core retail sales, which exclude volatile fuel and food, also performed strongly, rising 5.4% year-on-year and 1.1% month-on-month, both well above forecasts. However, the positive picture was tempered by comments from Dickinson, CEO of the British Retail Consortium, who noted that "consumer confidence has improved for the third consecutive month, largely driven by a rebound in sentiment among baby boomers."
She cautioned against interpreting the data as a recovery, stating that "only about one in ten people expect the economy to improve" and warned that "confidence remains fragile, with living cost pressures continuing to weigh heavily on many households."
Elsewhere, European Central Bank Chief Economist Philip Lane indicated that the ECB will review and potentially adjust its monetary policy stance in September. Speaking at a forum in Donegal, Ireland, Lane said that policymakers will calibrate interest rate policy based on the latest data. He argued that the eurozone economy is primarily supported by domestic demand, adding that the US is not the dominant force in global trade. When asked about the ECB's response to geopolitical challenges, Lane stated that "our job is more to react," and that the approach would be "neither overreacting nor underreacting."
Key data to watch in the coming days include the German IFO Business Climate Index for July, the UK CBI Retail Sales Index for July, and the US preliminary durable goods orders for June.
Turning to currencies, the US dollar index traded in a narrow range on Friday, edging slightly higher. It is currently trading around 101.10. The greenback continues to find support from renewed expectations of a Federal Reserve rate hike, as well as safe-haven demand stemming from heightened geopolitical tensions in the Middle East. Mixed US economic data released on Friday had a limited impact on the market. Key resistance is seen near 101.50, with support at 100.50.
The euro traded in a tight range on Friday, closing slightly lower at around 1.1410. The single currency was pressured by a stronger US dollar, which is being supported by Fed rate hike expectations and persistent safe-haven demand. However, positive eurozone economic data and growing expectations of an ECB rate hike in September limited the downside for the euro. Resistance is seen near 1.1500, with support at 1.1300.
The British pound moved higher on Friday, closing slightly higher at around 1.3360. The currency found support from short-covering and technical buying interest near the 1.3300 level. The strong UK retail sales data also provided a boost. However, the upside was capped by the broadly stronger US dollar. Key resistance is seen near 1.3450, with support at 1.3250.