The Pound Sterling (GBP) weakened after the weak Retail Sales report from the Office for National Statistics (ONS) for September. This decline occurred as higher borrowing costs and elevated inflation have reduced the purchasing power of British households.

GBP/USD fell further as the drop in consumer spending indicates that overall demand remains vulnerable, which will force UK companies to reduce their operational capacity.

This slowdown in retail demand will impact producers and workers, potentially leading to decreased production and labor demand. For the Bank of England (BoE), the poor retail demand also lowers expectations for consumer inflation and cools the economy. The BoE is likely to consider extending the interest rate pause until the monetary policy meeting in November.

Market News Summary: Pound Sterling Weakens After Weak Retail Sales Data

  • The Pound Sterling fell to the support level of 1.2100 as UK Retail Sales contracted more than expected in September.
  • Monthly Retail Sales, a key measure of consumer spending, declined by 0.9% compared to an expected decrease of 0.1%. In August, Retail Sales increased by 0.4%. Year-on-year, sales contracted by 1.0%, while economists had anticipated stagnation.
  • Retail Sales excluding fuel also fell by 1.0% and 1.2% on a monthly and annual basis, respectively.
  • The weakness in Retail Sales indicates that high inflation and rising borrowing costs have significantly pressured households.
  • A sharp decline in consumer spending is expected to significantly reduce expectations for consumer inflation.
  • Weaker spending may prompt the Bank of England to keep interest rates at 5.25% on November 2. This decision will be challenging, especially after September inflation data slightly exceeded expectations.
  • Monthly inflation rose by 0.5%, while investors anticipated a growth of 0.4%. The key annual Consumer Price Index (CPI) remained steady at 6.7%, surpassing the expectation of 6.5%.
  • The UK’s inflation data for September indicates that the Bank of England still has work to do to reduce inflation to 2%.
  • The highest inflation in the UK among G7 countries has sparked discussions about raising the inflation target to 3%.
  • The UK think tank, The Resolution Foundation, suggested that a higher inflation target could allow the central bank to reduce the need for borrowing and bond purchases while providing more stimulus.
  • The U.S. dollar recovered slightly after Federal Reserve Chair Jerome Powell provided neutral guidance on interest rates on Thursday.
  • Jerome Powell and his colleagues noted that the recent surge in U.S. Treasury yields has significantly tightened financial conditions. However, strong U.S. economic performance and a tight labor market could lead to further rate hikes.
  • On Thursday, the U.S. Department of Labor reported the lowest weekly unemployment claims in nine months. The number of individuals filing for unemployment benefits for the first time in the week ending October 13 was 198,000, below the expectation of 212,000 and the previous figure of 211,000.
  • Market sentiment remains gloomy due to rising tensions in the Middle East. Western countries’ support for Israel has raised expectations of Iranian intervention in the Israel-Palestine conflict.
  • After U.S. President Joe Biden expressed support for Israel in its confrontation with Hamas, UK Prime Minister Rishi Sunak conveyed support for Israel, stating, "We want you to win."


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