Forex Market: GBP/USD retreats as mixed China data fails to support risk sentiment, US retail sales now in focus

GBP/USD retreated on Thursday despite an unexpected drop in UK jobless claims in June, as mixed macro data from China failed to support investor risk sentiment, while boosting the greenback.

Earlier Thursday China reported a faster-than-expected GDP growth during the second quarter, 3.2% year-on-year. However, retail sales unexpectedly shrank at an annualized rate of 1.8% in June, which marked the sixth consecutive month of decline and also indicated an uneven recovery from the pandemic.

Meanwhile, the Sterling ignored an upbeat report by the UK Office for National Statistics that showed the number of people in the country filing for unemployment benefits had dropped by 28,100 to 2.6 million in June. The latest data followed a revised up increase by 566,400 in May, while the median analyst estimate had pointed to a June surge by 250,000.

The report also showed a lesser-than-expected drop in UK employment. The number of people on payrolls dropped by 126,000 to 32.948 million during the three months to May, which compares with market consensus of a 234,000 decrease. Yet, it has been the sharpest quarterly drop since the period between July and September 2011.

The rate of unemployment in the country remained stable at 3.9% during the three months to May, while market expectations had pointed to an increase to 4.2%.

On the other hand, there has been certain hesitation among market players if the recently announced fiscal stimulus measures will suffice to support economic activity.

“We still believe going forward the UK faces issues and think the economy will fare worse than others in Europe,” Rony Nehme, chief market analyst at Squared Financial, said.

As of 11:21 GMT on Thursday GBP/USD was edging down 0.38% to trade at 1.2539, while moving within a daily range of 1.2520-1.2594. The major pair has retreated 0.68% so far this week, following two consecutive weeks of gains.

Today’s market focus will be on the monthly report on US retail sales at 12:30 GMT. Analysts on average expect a 5.0% monthly growth in sales in June, following a record 17.7% surge in May.

Additionally, core retail sales, which exclude large ticket prices and historical seasonality of automobile sales, are expected to increase 5.0% in June, following a record monthly gain of 12.4% in May.

A separate report by the Federal Reserve Bank of Philadelphia at 12:30 GMT may show manufacturing activity in the area increased at a slower rate in July from a month ago. The Philadelphia Fed Manufacturing Index probably came in at 20.0 in July, according to market expectations, down from a level of 27.5 in June. The latter has been the first positive reading since February, as the sub-gauges of shipments and new orders recovered from the area of contraction.

Also at 12:30 GMT, the US Labor Department will report on jobless claims. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended July 10th, probably eased to 1,250,000, according to expectations, from 1,314,000 in the preceding week. Still, however, the latest number of claims exceeded the peak observed during the 2007-2009 financial crisis more than twice.

At 15:10 GMT Federal Reserve President for New York John Williams is scheduled to speak during an Office of Financial Research Advisory Committee meeting via webcast, while at 17:30 GMT Fed President for Chicago Charles Evans is expected to participate in a virtual presentation at the Rocky Mountain Economic Summit.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 26.2 basis points (0.262%) as of 10:15 GMT on Thursday, up from 25.3 basis points on July 15th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2595
R1 – 1.2641
R2 – 1.2696
R3 – 1.2742
R4 – 1.2788

S1 – 1.2541
S2 – 1.2495
S3 – 1.2440
S4 – 1.2386

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