GBP/USD sell-off gains steam after weak UK retail sales data

The GBP/USD price tumbled for the second straight day as flash economic numbers pointed to a slowing economy as the number of Covid cases rises. The pair declined to 1.3615, which was the lowest level since July 21st. 

UK retail sales disappoint

The retail sector is a key component of the UK economy. Besides, it is one of the biggest employers in the country. The sector is also an important indicator of consumer spending, which is the biggest constituent of the economy. 

After staging an impressive comeback a few months ago, UK retail sales tumbled in July as the country dealt with the current Delta variant wave. 

According to the Office of National Statistics (ONS), the headline retail sales declined by 2.5% on a month-on-month basis in July. This trend translated to an annualised increase of 2.4%, which was substantially lower than June’s increase of 9.2%.

Meanwhile, core retail sales, which excludes the volatile food and energy prices, declined by 2.4% in July after rising by 0.3% in June. They rose by 1.8% on a year-on-year basis, which was lower than the previous 6.8%. 

These numbers came two days after the ONS published relatively weak UK consumer price index (CPI) data. The numbers showed that the headline CPI declined from 2.5% in June to 2.0% in July. This decline was substantially steeper than the median estimate of 2.3%. The core CPI also declined faster than expected.

The ongoing trends in inflation will likely remain considering that commodity prices have retreated recently. Crude oil has dropped from the year-to-date high of more than $76 to $66 while the West Texas Intermediate (WTI) has declined to $64. Other commodity prices like copper and iron ore have also tumbled.

GBP/USD prediction

On the 1D chart, we see that the GBP/USD pair has been in a steep downward trend in the past few days. It is about 4.6% below the highest point this year. It has also declined below the 25-day and 50-day exponential moving averages (EMA) while the MACD has moved below the neutral level. The price is also slightly below the Ichimoku cloud. 

Therefore, the pair will likely continue the downward trend as bears target the key support level at 1.3500. On the flip side, a move above the resistance at 1.3750 will invalidate this view.