Forex Market: GBP/USD steady near six-week highs as UK retail sales surge at record rate in June, Brexit uncertainty persists

GBP/USD kept steady near fresh six-week highs on Friday after a report by the UK Office for National Statistics showed retail sales had surged at a record monthly rate in June, far exceeding market expectations.

Retail sales rose 13.9% in June from a month ago, following a revised up 12.3% increase in May. However, considering Q2 2020, sales dropped 9.5% compared to Q1 due to the steep rates of decline in March and April. UK’s retail sales excluding fuel also increased at a record pace in June, by 13.5%, following a revised up 10.6% surge in May.

Yet, Brexit uncertainty continued to weigh on the Pound. Yesterday the major pair retreated from intraday highs after EU chief Brexit negotiator Michel Barnier said the UK had shown no willingness to break the stalemate on trade following another round of negotiations, while no progress had been made on the matter of ensuring fairness on state aid.

“Sterling’s slump after Michel Barnier’s comments should come as no surprise as headlines reinforce how far both sides are away from a comprehensive free trade agreement,” Simon Harvey, currency analyst at Monex Europe, said.

“The game of brinkmanship is likely to continue throughout Q3 and into Q4 in our opinion, resulting in only one certainty: an increase in sterling volatility to levels seen previously when the risk of a hard Brexit increased.”

As of 6:52 GMT on Friday GBP/USD was inching up 0.02% to trade at 1.2743, after earlier touching an intraday high of 1.2773, or a level not seen since June 10th (1.2813). The major pair has risen 1.46% so far this week, while being set to register its best performance since the week ended on June 5th.

On today’s economic calendar, activity in United Kingdom’s sector of manufacturing probably expanded at a faster rate in July, with the corresponding Purchasing Managers’ Index coming in at a reading of 52.0, according to the median forecast by experts. In June, the PMI was reported at a final 50.1, which pointed to stabilization in operating conditions in the sector after the recent sharp downturn.

At the same time, activity in United Kingdom’s sector of services probably expanded for the first time since February in July, with the respective PMI coming in at a reading of 51.5, according to expectations. In June, the Services PMI stood at a final 47.1, as export sales continued to drop at a sharp rate while inflows of new work shrank at a softer rate.

The IHS Markit/CIPS will release the preliminary data at 8:30 GMT.

Last but not least, a report by the US Census Bureau at 14:00 GMT may show new home sales rose 4% to 0.700 million units in June, according to market consensus. In May, sales of new single-family homes in the country went up 16.6% from a month ago to an annualized level of 0.676 million.

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 25.9 basis points (0.259%) as of 6:15 GMT on Friday, up from 25.3 basis points on July 23rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2725
R1 – 1.2776
R2 – 1.2812
R3 – 1.2863
R4 – 1.2915

S1 – 1.2689
S2 – 1.2638
S3 – 1.2603
S4 – 1.2567