GBP/USD snaps two days of declines on upbeat UK retail sales

The pound snapped two days of declines against the US dollar, after data showed UK retail sales increased at the fastest monthly pace since June 2008.

GBP/USD hit a session high at 1.6458 at 09:55 GMT, after which consolidation followed at 1.6447, adding 0.57% for the day. Support was likely to be received at December 18th low, 1.6273, while resistance was to be encountered at January 14th high, 1.6464.

The pound drew support, after data released today revealed much higher-than-expected increase in retail sales in the last month of 2013.

The UK Office for National Statistics reported the nations retail sales advanced at the fastest pace since June 2008, soaring by 2.6% in December or 8 times higher than the median analyst forecast of a 0.3% increase. The retail sales in November were revised downwards from 0.3% to 0.1%. On annual basis, UK retail sales surged by 5.3% in December, while analysts had expected the retail sales will increase by 2.5%. In November, retail sales were revised downwards to 1.8% from 2%

Data also showed that the core retail sales, or those excluding sales of automobiles and fuel, which tend to be volatile, increased by 2.8% in December, outstripping analysts forecasts of a 0.3% increase. On annual basis the core retail sales soared by 6.1%, while analysts had predicted a smaller gain of 3.2%.

The retail sales and core retail sales can be regarded as leading indicators of consumer spending, which accounts for the majority of the overall economic activity.

Meanwhile, the greenbacks demand remained supported by a recent series of upbeat US economic data.

Yesterday, the Federal Reserve Bank of Philadelphia said its manufacturing activity index improved to a reading of 9.4 in January, surpassing preliminary estimates of a reading of 8.8, while in December the index came in at 6.4. The reading reflects the difference between optimistic and pessimistic forecasts, measured as a percentage, regarding business conditions in manufacturing in the region.

A separate report by the US Department of Labor, showed the number of initial jobless claims fell to 326 000 in the week ended January 11th, the weakest level since November. Analysts had expected the people who file for unemployment benefits will be 328 000, after they have been revised downwards to 328 000 from 330 000 in the previous week.

In addition, the Bureau of Labor Statistics, part of the US Department of Labor, released a report that showed nation’s PPI surged by an annualized 1.2% in December, after the index increased by 0.7% in November. Analysts had expected the PPI will rise to 1.1%. Month-over-month, the PPI increased by 0.4% in December, the largest increase since June and in line with analysts’ forecasts and after the index declined by 0.1% in the preceding month.

Data showed that the core PPI also rose by an annualized 1.4%, exceeding previous month 1.3% increase and higher than analysts’ estimates of a 1.3% gain. Month-over-month, the index rose by 0.3% in December, while analysts had expected the index will rise by 0.1%. In November the core PPI rose by 0.1%.

On Wednesday, data showed a gauge that tracks the manufacturing activity in the state of New York, increased to 12.1 in January, the strongest level since May 2012, which was more than three times larger-than-projected. According to the median analyst’ forecast the index should have increased to 3.5, after an upward revision to 2.22 in the previous month.

Investors awaited the release of US data on building permits, housing starts and industrial production, accompanied by s report on the the preliminary reading of the University of Michigan consumer sentiment index. All the reports are scheduled to be published later in the day.

Elsewhere, AUD/USD touched a daily low at 0.8802 at 2:20 GMT, after which consolidation followed at 0.8810, falling 0.13% for the day. Support was likely to be received at January 16th low and also the lowest level since August 25th 2010, 0.8777, while resistance was to be met at January 16th high, 0.8906.