GBP/USD snaps a four-day drop despite downbeat UK retail sales data

The pound advanced against the US dollar, but gains were limited, after data revealed UK retail sales expanded at a slower-than-expected pace in January.

GBP/USD hit a session high at 1.6688 at 09:47 GMT, after which consolidation followed at 1.6670, adding 0.11% for the day. Support was likely to be received at February 13th low, 1.6600, while resistance was to be met at February 20th high, 1.6700. On February 17th, GBP/USD touched 1.6823, the strongest level since November 2009.

The UK Office for National Statistics reported today that nations retail sales decreased 1.5% last month, above analysts estimates of a 1% decline. Retail sales in December received a downward revision to a 2.5% gain from an initially estimated 2.6% increase. Retail sales slowed to an annualized 4.3% increase in January, short of median analyst forecasts for a 5% gain and after a 5.3% advance in the previous month.

“Expectations are pretty high for retail sales,” Peter Kinsella, a senior currency strategist at Commerzbank AG in London, commented ahead of the report in a Bloomberg interview. “There is some risk of a disappointment but most of the survey data seems consistent with a reasonably good print. It will underline that the general sentiment toward the pound is low inflation and better growth, and that’s good for the currency.”

A separate report revealed the UK public sector net borrowing declined by 6.4 billion pounds last month, capping the largest surplus in a year, which however was smaller than the experts estimates for a 9 billion pounds decline. Decembers budget deficit was revised down to 9 billion pounds from initially estimated 10.4 billion pounds.

However, the pound remained supported, after the central bank policy maker Martin Weale said nations interest rates could be raised at the beginning of next year. Weale’s comments came after on February 13th, Bank of England Chief Economist Spencer Dale said market players bets for the benchmark interest rate to be raised in 2015 from the current record low level seemed reasonable.

BoE’s minutes from its February meeting, released on February 19th, showed central bank’s policy makers voted unanimously to keep interest rates unchanged as they prepared for a new phase of forward guidance.

Meanwhile, the minutes of Federal Reserve Bank’s policy meeting on January 28th-29th showed that several policy makers said in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to pare back the central bank’s monthly monetary stimulus by 10 billion USD at each meeting.

As the rate of unemployment decreases at a faster than expected pace, even while other labor-market indicators signal weakness, bank’s policy makers agreed that it would “soon be appropriate” to revise their guidance about the time horizon of record-low borrowing costs.

Federal Reserve President for St. Louis, James Bullard, and Fed President for Dallas, Richard Fisher are expected to take a statement later in the day, while Fed Chair Janet Yellen will attend a meeting of G-20 finance ministers and central bankers in Sydney.

Yesterday the Bureau of Labor Statistics in the United States said in a report that the index of consumer prices rose 0.1% in January compared to a month ago, in line with analysts’ estimates and after the index gained 0.2% in December. The annualized consumer price inflation came in at 1.6% last month, matching the median experts’ forecast and following a 1.5% increase in December.

Core consumer prices, which exclude the volatile food and fuel categories, also advanced 0.1% in January compared to the preceding month, while the annualized core consumer price inflation reached 1.6% in January.

Additionally, the number of initial jobless claims in the country fell by 3 000 to 336 000 during the week ended on February 15th, while preliminary estimates pointed a decrease to 335 000 claims.

Elsewhere, USD/JPY touched a session high at 102.61 at 05:15 GMT, after which consolidation followed at 102.48, adding 0.2% for the day. Support was likely to be found at February 20th, 101.67, while resistance was to be met at February 18th high, 102.75.