Worst December Retail Sales On RecordThe British Pound is back under pressure today following a dismal set of retail sales for December. Retail activity was seen falling by 3.7% over the month, well below the -0.6% reading forecast, marking a stark drop from the prior month’s 1% gain. Indeed, at this level, UK retail sales over the festive period were the worst on record. Now, admittedly this isn’t great news. However, it is worth remembering that December was a very difficult month globally given the fears around omicron which, at the time, threatened to be the worst wave of the pandemic yet. Since then, of course, we have (thankfully) seen risks from this variant fading, leading to optimism that the pandemic is now in its final stages.COVID Restrictions to Be Eased So, with that in mind, December’s data can to some extent be written off. The UK has avoided going into lockdown and is in fact now due to scale out of the government’s “Plan B” restrictions as early as next week. While critics will argue that the timing of this move is merely a crude attempt by the UK PM to divert attention away from his litany of scandals and regain some favour amongst the electorate, it is of course a necessary step in moving beyond the pandemic. Hopefully, a step that won’t transpire to have come too early.BOE OutlookIn terms of GBP then, the focus is firmly back on the BOE. With inflation soaring to its highest levels in thirty years over December and with the labour market continuing to tighten amidst the strangle hold of supply chains issues, the case for hiking is clear. With this in mind, the market is looking for the BOE to raise rates by a full 0.25% when it meets next in February. GBP had been one of the strongest performers in the G10 pack up until this recent pullback and if the BOE delivers on a hike next month, this should restore GBP upside and detract from the political uncertainty looming in the not so distant future. However, should the BOE refrain from hiking, the market will no doubt be swift to punish the Pound, especially given Bailey’s misstep in November when he over promised and undelivered. Oops!Technical ViewsGBPUSDGBPUSD failed at the test of the bear channel top and is now turning lower once again. With MACD and RSI having turned bearish here, the focus is on a test of the 1.3461 region next. Below there, the key levels to note are 1.3349 and below that the channel low and 1.3196. To the topside, bulls need a clean break of 1.3676 to regain upside momentum.
Source: Tickmill
