This morning, the attention of British investors was fixed on the retail sales report, where the unexpected drop in nominal wage growth and the inflation number surpassing predictions introduced conflicting data points for interpretation. The highly awaited macroeconomic week wrapped up with the Office for National Statistics revealing a significant 3.2% decline in December retail sales, marking the steepest fall since January 2021 and defying economists' expectations of a mere 0.5% contraction. The downturn was widespread, impacting food stores negatively, while department stores and goods retailers expressed concerns about sluggish demand. The year concluded with an annual growth rate of -2.8%, marking the lowest sales figure since 2018.
The repercussion on the pound is noteworthy. Our foresight regarding both the likelihood of data disappointments this week and the pound's resilience to such data has been validated. Although GBP/USD exhibited a modest reaction to the three macro releases this week, the correlation between sterling and global risk sentiment, along with Federal Reserve pricing, proved more influential than regional data. The data discrepancies, including the unexpected upside in UK CPI, are unlikely to sway the Bank of England decisively in either direction. This elucidates the restrained price dynamics of the currency pair, which remained within a narrow range of 1.8% over the past five weeks, oscillating between $1.26 and $1.2870.
Beyond the US dollar and euro, the pound has demonstrated strength against other currencies, showcasing its resilience amid high inflation and escalating short-term yields. The GBP is anticipated to appreciate for a fourth consecutive week against the Swedish krona, Australian dollar, and Canadian dollar, while also concluding the third successive week on a stronger note against the Japanese yen, Swiss franc, and Norwegian krone.
