The British pound has extended its losses on Friday. In the European session, GBP/USD is trading at 1.2600, down 0.45%. Earlier, the pound fell as low as 1.2584, its lowest level since March 20.
UK Retail Sales Unchanged in February
UK retail sales were flat in February, after a revised 3.6% gain (m/m) in January. This was better than the market estimate of -0.3%. On an annualized basis, retail sales fell by 0.4%, erasing most of the 0.5% gain in January. Britain’s weather was unusually wet in February which dampened retail trade.
Dovish BoE Sends Pound Tumbling
The Bank of England maintained the cash rate at 5.25% at Wednesday’s meeting. The pause was widely expected and marked the sixth straight time that the BoE has kept rates unchanged.
Perhaps the most significant development at the meeting was the Monetary Policy Committee vote. The MPC voted 8-1 to keep rates unchanged, with one member voting for a quarter-point cut. This was the first time in the current tightening cycle that no members voted for a hike – at the previous meeting, two members voted to raise rates by a quarter-point.
The markets pounced on the vote as evidence of a dovish shift in the Bank’s stance and the British pound sank 1% on Wednesday, its worst one-day performance since October 2023.
It looks like rates have peaked, but when can we expect the BoE to start cutting rates? Governor Bailey said after the meeting that inflation is not “yet at the point where we can cut interest rates, but things are moving in the right direction”. The markets are looking at an initial cut in June, with an outside possibility in May.
GBP/USD Technical
- GBP/USD is testing support at 1.2605. Below, there is support at 1.2552
- There is resistance at 1.2704 and 1.2757