The Pound fell sharply against the dollar and Euro on Friday after UK retail sales missed estimates, implying a deterioration in the health of the UK consumer and economy.
GBP/USD fell 0.6% to 1.1400 and GBP/EUR was down 0.33% at 1.1429. The pound was at the weakest level against the Euro since February 2021 and lowest against the dollar since 1985.
“UK retail sales have seen their biggest decline so far this year, dropping 1.6% compared to a 0.4% increase in July. This is markedly worse than forecasts of a 0.5% fall, and indicates rising prices and the cost of living crisis is stopping consumers from reaching for their purse when it comes to extra spending,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.
“There is also the possibility these figures suggest the UK is already in recession.”
If the UK were to be in a recession it wouldn’t be a huge surprise. The Bank of England warned we face a prolonged recession earlier in the summer and we have already experienced monthly GDP contractions this year.
GBP/USD
A strengthening dollar has pummelled GBP/USD this year and pushed down to key support around 1.1400.
Analysts at Credit Suisse highlighted 1.1409/1.1350 as key technical support levels that could signal a move to near parity with the dollar, if broken.
“GBP remains weak on a Trade Weighted basis and we thus continue to look for a break below 1.1409 and then a move to potential trend support at 1.1350, below which would signal a substantial breakdown and open the door to 1.1285 next, ahead of 1.1020/00, which is now our core objective. However, we would not rule out a move all the way to the 1985 lows at 1.0520 if 1.1409/1.1350 breaks.”