Pound Sterling gains on surprisingly positive UK Retail Sales data

• The Pound Sterling rebounds against its major peers after the UK ONS reported upbeat Retail Sales data for March.
• Traders are confident of a 25 bps interest rate reduction by the BoE in May.
• De-escalation in the US-China trade war has supported the US Dollar.

The Pound Sterling (GBP) bounces back against its major peers on Friday after the release of surprisingly positive UK Retail Sales data for March. The Office for National Statistics (ONS) has reported that retail sales, a key measure of consumer spending, rose by 0.4% month-on-month, while economists had anticipated a 0.4% decline. In February, the consumer spending measure grew by 0.7%, revised lower from 1%.

Year-on-year Retail Sales surprisingly grew at a faster pace of 2.6% compared to the prior release of 2.2% and the moderate pace of 1.8% expected.

Theoretically, upbeat UK Retail Sales data force traders to pare bets favoring an expansionary monetary policy stance by the Bank of England (BoE). However, traders are increasingly confident that the BoE will reduce interest rates by 25 basis points (bps) to 4.25% in the May policy meeting.

Severe uncertainty over the global economic outlook in the face of tariffs announced by United States (US) President Donald Trump earlier this month and slower-than-expected Consumer Price Index (CPI) data for March are major catalysts behind firm BoE dovish bets.

BoE Governor Andrew Bailey warned that “tariffs” announced by the US and “countermeasures” by other nations are expected to bring “shockwaves” to the UK economic growth, while talking to CNBC television on the sidelines of the International Monetary Fund’s Spring Meetings in Washington. However, Bailey ruled out the possibility of a recession. "I don’t think the UK economy is close to recession at the moment," Bailey said. On Wednesday, he stressed the need to consider trade war risk. "We do have to take very seriously the risk to growth, Bailey said.

Meanwhile, investors look for trade negotiations between UK Chancellor of the Exchequer Rachel Reeves and Washington on Friday. Ahead of negotiations, Reeves said at US television outlet Newsmax on Thursday that she is confident they can “strike a deal”.

Daily digest market movers: Pound Sterling gauges ground against USD on upbeat UK Retail Sales

• The Pound Sterling strives to gain ground near the intraday low of 1.3280 against the US Dollar (USD) during European trading hours after the release of the upbeat United Kingdom (UK) Retail Sales data for March. The GBP/USD pair is still down almost 0.3% as the US Dollar (USD) is outperforming on hopes of a de-escalation in the US-China trade war.
• The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds to near 99.70 after a steep correction on Thursday. Fears of a spiralling trade war between the world’s two largest powerhouses started diminishing after the White House indicated that a deal could be done and signaled that both nations could reduce tariffs before coming to the table.
• US Treasury Secretary Scott Bessent stated on Wednesday that both nations will reduce additional tariffs imposed recently. “Neither side believes that these are sustainable levels,” Bessent said. Hopes of a de-escalation in the tariff war have got an extra boost as Beijing has indicated that it is considering tariff exemptions for some US goods. According to a Bloomberg report, China is considering pausing a 125% import duty on US medical equipment and some industrial chemicals.
• However, contradictory statements from US President Trump and Beijing still keeps slight uncertainty among market participants over the US-China trade outlook. Trump has claimed in an interview with Time Magazine that Chinese President Xi Jinping has called him. However, Bejing keeps denying about having any trade negotiations with Washington.
• On the economic front, stronger-than-expected US Durable Goods Orders data for March has indicated that tariff policies by US President Trump have started feeding into business activities. The cost of orders for durable goods received by business owners rose at a robust pace of 9.2%, beating estimates of 2% and the prior release of 0.9%. A multi-fold increase in the economic data is evidence of Federal Reserve (Fed) officials’ stance of avoiding any monetary policy adjustments before getting greater clarity on how new economic policies will shape the economic outlook.

Technical Analysis: Pound Sterling holds 1.3300

The Pound Sterling trades lower to near 1.3300 against the US Dollar in Wednesday’s European session. The outlook of the pair remains firm as all short-to-long Exponential Moving Averages (EMAs) are sloping higher.

The 14-day Relative Strength Index (RSI) cools down to near 63.00 after turning overbought. This indicates a mild correction in the pair after a strong rally but doesn’t invalidate the upside trend.

On the upside, the psychological level of 1.3500 will be a key hurdle for the pair. Looking down, the April 3 high around 1.3200 will act as a major support area.

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