UK Retail Sales declined by 0.5% month-on-month in July, marking the first drop since April, according to data from the Office for National Statistics released on Friday [1][2]. This contraction followed a revised 0.7% increase in June (previously reported as 1.0% or 1% in different sources) and matched market expectations for July [1][2]. On an annual basis, retail sales grew by 1.6% in July, down from a revised 3.8% in June and below the consensus forecast of 2.2% [1][2]. Core Retail Sales, which exclude auto motor fuel, also fell by 0.9% month-on-month in July, reversing the 0.9% increase seen in June [1][2].
The British Pound reacted modestly to the weaker retail sales data, with the EUR/GBP cross posting gains to around 0.8570 during the early European session, as the GBP edged slightly lower against the Euro [1]. However, the Pound held firm against the US Dollar, with GBP/USD trading near six-month highs around 1.3660 and on track for a 0.8% weekly rally, supported by a weaker US Dollar amid US Treasury bond buyback plans [2].
Market expectations for the Bank of England (BoE) have shifted, with a strong majority of economists polled by Reuters now anticipating that the BoE will leave interest rates unchanged at 3.75% for the remainder of the year [1]. Analysts at Danske Bank noted that recent softer inflation and labor market data have tempered expectations for further BoE tightening, as investors reassess the likelihood of additional rate hikes [1]. In contrast, financial markets are pricing in a continuation of the European Central Bank (ECB) hiking cycle, with the ECBWatch Tool indicating a 90% to 94% chance of a 25 basis point hike to 2.50% at the next policy meeting scheduled for September 9 [1].
Technical analysis of the EUR/GBP pair shows it remains capped under the 100-day simple moving average, with resistance at 0.8585 and 0.8615, and support at 0.8560 and 0.8535 [1]. Meanwhile, the GBP/USD pair's strength is attributed to the US Dollar's weakness, as US Treasury Secretary Scott Bessent suggested bond buybacks could increase beyond the $4 billion per operation previously announced, a move seen by strategists at BBH as a debt-management swap but potentially undermining US fiscal credibility if perceived as yield management [2].
Additionally, UK Public Sector Net Borrowing increased by GBP 1.8 billion in July, below June’s GBP 12.78 billion but above the market expectation of GBP 0.3 billion [2].
CONCLUSION
UK Retail Sales data for July came in weaker than expected, prompting a modest decline in the Pound against the Euro but not derailing its gains versus the US Dollar, which remains pressured by US Treasury policy actions. Diverging central bank outlooks, with the BoE expected to hold rates steady and the ECB likely to hike, are influencing currency movements. The market remains cautious as investors await further economic data and central bank decisions.