GBP/USD bears rejoice after weak UK retail sales and PMI data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Jan 22, 2021
  • The GBP/USD turned lower after weak economic numbers from the UK.
  • The UK retail sales rose at a slower rate than expected in December.
  • The flash services PMI dropped to 38.8 while the composite PMI fell to 52.9 in January.

The GBP/USD retreated today after relatively weak economic numbers from the United Kingdom. The pair, which has been on an uptrend recently, is trading at 1.3673, which is lower than this week’s high of 1.3745.

GBP/USD
GBP/USD price action

UK retail sales disappointed

The GBP/USD pair dropped after the Office of National Statistics (ONS) released weak retail sales numbers. In December, the overall volume of retail sales in the UK, increased by 0.3% from November. Subsequently, the sales rose by an annualised rate of 2.9%, which was lower than the median estimate of 4.0%.

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Core retail sales, which exclude volatile food and energy products, increased by 0.4% in December. They increased by 6.4% from the same period in 2019. The median estimate was for the sales to rise by 6.4%. 

Meanwhile, public debt in the UK continued to rise as the government extended its pandemic response tools. In total, the public debt rose by £33.38 billion, higher than the expected £27.30 billion. 

Perhaps, the most important reason why the GBP/USD dropped was the flash manufacturing and services numbers. According to Markit, the services PMI declined to a multimonth low of 38.8. This was lower than December’s 49.4 and the median estimate of 49.9. The number is important because the services sector is the main employer in the UK.

The manufacturing sector expanded at a slower rate with the overall PMI falling from 57.5 to 52.9. Subsequently, the composite PMI fell to 52.9.

The sterling, therefore, declined because these numbers are putting pressure on the Bank of England (BOE) to provide more aid. While an MPC member supported negative rates a week ago, Andrew Bailey warned about their complexities.

GBP/USD technical outlook

GBP/USD
GBP/USD technical chart

The four-hour shows that the GBP/USD faced strong resistance at the 1.3700 level. In fact, it had a false breakout today. Also, the pair has formed an ascending triangle pattern while the two lines of the MACD have made a bearish breakout. The price has also moved below the 25-day and 15-day weighted moving averages (WMA). 

Therefore, the pound will likely head lower as bearish forex investors target the lower side of the support at 1.3600. However, in the near term, the overall trend will be bullish because of the ascending triangle pattern.

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