British Pound Dips on Weak Retail Sales

My FX Forum

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GBP/USD is slightly lower in the Thursday session, after considerable losses on Wednesday. In North American trade, the pair is trading at 1.3099, down 0.14% on the day. On the release front, British retail sales dropped 0.8%, weaker than the estimate of -0.4%. In the U.S, key indicators beat their estimate. The Philly Fed Manufacturing Index dropped to 22.2, above the estimate of 19.7 points. On the employment front, jobless claims dropped to 210 thousand, just below the estimate of 211 thousand. On Friday, Britain’s deficit is expected to narrow to GBP 4.6 billion and BoE Governor Mark Carney speaks at an event in New York.

British consumer indicators softened in September, and that could mean downwinds for the British pound. GBP/USD slipped 0.53% on Wednesday, as British CPI dropped to 2.4% in September, down from 2.7% in August. This marked a three-month low, but inflation still remains above the BoE target of 2 percent. A sharp decline in retail sales on Thursday could add to the pound’s downside risk, as the soft consumer numbers together with Brexit anxiety could dampen investor risk appetite.

Leaders attending an EU summit would all agree that Brexit is a critical issue, but it’s unlikely that the EU will issue a draft statement on Brexit, due to the deadlock in negotiations. The European leaders sounded pessimistic about reaching a deal, unless Theresa May brings fresh proposals to the table. With only five months until Britain departs the EU, the likelihood of a no-deal scenario is very real. France has published a draft bill that allows the government to impose custom inspections and visa requirements on British visitors, in the event that no deal is reached. There has been little progress on the thorny issue of the Irish border. The EU is insisting that it will not sign a withdrawal agreement with Britain, unless there is a backstop which allows Northern Ireland to remain in a customs union with the EU after Brexit. However, the British government is unlikely to agree to such a move, since it would require regulatory barriers within the United Kingdom. In a conciliatory move, Michel Barnier, chief Brexit negotiator for the EU, offered to extend the transition phase by 12 months, which would leave it in place until December 2021. This would give the sides more time to work on the shape of a new customs union as well as outstanding issues. On the European side, the mood over Brussels is so sour that officials are saying that they may not hold a November summit, unless substantial progress is made in the next several weeks.