TODAY witnessed the decline of the British pound against the US dollar (GBP/USD) by 0.2% at approximately 7:00 a.m. GMT, reaching the level of 1.26727 at its maximum decline. While Euro was also able to record gains against the pound (EUR/GBP) by about 0.3% at the same time.
The pound’s decline today came with the shocking retail sales data for December, coinciding with the market lowering its expectations about an interest rate cut in the United States soon.
These retail sales figures were also able to provide support for the euro to rise against the pound, despite the larger-than-expected decline in the Producer Price Index (PPI) in Germany last December.
Today we witnessed the announcement of retail sales figures for December, which was very shocking with the sudden decline in various readings.
On a monthly basis, retail sales declined at the fastest pace since December of 2021, by 3.2%, which was also far from expectations of a contraction of only 0.5%, reversing the previous increase in November of 1.4%. On an annual basis, sales fell by 2.4%, which is also very far from expectations of growth of 1.1%.
While the decline was driven by a decline in sales of non-food stores by 3.9%, far from the growth recorded in November at 2.7%.
Thus, retail sales decreased for the second year in a row and by 2.8% during the year 2023 compared to the year 2022, which recorded a decrease of 3.4%.
The decline also included non-volatile items, both auto and fuel. Core retail sales fell by 3.3% on a monthly basis, reversing a previous growth of 1.5% and far from expectations of a contraction of 0.6%. On an annual basis, it decreased by 2.1% compared to expectations for growth of 1.3%.
This violent decline in retail sales, at the level of various sectors, came with the tendency of consumers to spend on the Christmas season early in November instead of December, in addition to the tendency to reduce spending with the rising costs of living and difficult economic conditions, according to the report of the Office for National Statistics.
It appears that rising financing costs and monetary tightening have had a clear impact on consumers, even in spending seasons, and even at the level of spending on food and basic needs, and this may encourage markets to adhere to their expectations of a significant cut in interest rates this year.
However, the picture in the United States is very different, as markets tend to lower their expectations about the possibility of the Federal Reserve cutting interest rates next March, in light of the larger-than-expected rise in inflation in December and the low unemployment claims, which came at the lowest levels of the year 2022 during the past week.
This, in turn, may contribute to putting more pressure on the pound, with a series of strong rises in US Treasury bond yields in light of the re-pricing of market expectations.