The Pound Sterling fell against major currencies due to slower-than-expected growth in UK Retail Sales. Retail Sales increased by 0.9% from last month and 1.7% from last year, both below predictions. While sales of automotive fuel and department store goods were strong, sales in non-food stores dropped significantly. The UK has secured a free trade deal with India, creating opportunities in sectors like liquor, textiles, and cars. However, a slowdown in the UK’s private sector, driven by global trade uncertainties, may continue to negatively affect the currency. The Composite PMI for July stood at 51.0, falling short of forecasts.

Expected US-EU Trade Agreement

The US is set to announce a trade agreement with the EU, which will likely boost the US Dollar as it strengthens ties with key trading partners. The market is looking forward to important US data releases and the Fed’s upcoming decisions on monetary policy. The Fed is expected to keep interest rates in the 4.25%-4.50% range, and future statements will be closely monitored for hints on interest rates and inflation. US Durable Goods Orders for June are predicted to have dropped by 10.8%. Traders should watch the support and resistance levels of the GBP/USD pair, which is trading below key technical indicators. This economic backdrop may include potential shifts in US monetary policy, such as quantitative easing or tightening, directly affecting the dollar’s value. With conflicting economic signals, we believe traders should be ready for ongoing pressure on the Pound Sterling. The UK’s private sector growth recently slowed to a three-month low, with the S&P Global/CIPS Flash Composite PMI for June at 51.7, raising concerns about a cooling economy. This indicates that derivative positions might be beneficial if the currency declines or stagnates. Nonetheless, it’s important to note that recent official data showed UK retail sales volumes rose significantly by 2.9% in May, contradicting earlier reports of a slowdown. This consumer strength could cause short-term volatility and penalize overly pessimistic bets. Therefore, any strategies betting against the pound should be designed with defined risks.

Watchful Eye on the Federal Reserve’s Policy

On the other side of the Atlantic, attention is on the Federal Reserve’s upcoming monetary policy decisions. With interest rates currently at a two-decade high of 5.25%-5.50%, the market has factored in that the central bank will likely keep rates steady for now. We are watching for any change in tone regarding the timing of potential rate cuts, as this will significantly influence the US Dollar. Recent US economic data, including a modest 0.1% rise in durable goods orders for May, suggests a resilient but cooling economy. Historically, when the US central bank maintains a hawkish stance while others consider easing, it tends to support the dollar. This strengthens the argument for strategies that favor the dollar over the pound. The GBP/USD pair is currently trading around its 50-day moving average, indicating no clear directional momentum. This technical situation, along with mixed economic data from both countries, makes aggressive trades risky. We believe option strategies aiming to benefit from a slow decline or range-bound price action, rather than a sharp drop, are the best approach in the coming weeks. Create your live VT Markets account and start trading now.

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