Retreat for GBP/USD after hitting 2-month high

GBP/USD hit a 2-month high yesterday before retreating on the latest Brexit headlines. UK Retail Sales and any further headlines are in focus today.

Previous Day's Market Highlights

It was a volatile day for the pound as sterling reacted to the latest economic data and Brexit headlines. The pound rallied on a jump in CPI, which saw headline inflation up from 2.5% to 2.7% (it peaked at 3.1% last November) and core inflation up from 1.9% to 2.1%. Forecasts had been for both measures to slip lower. Higher inflation supports the argument for higher interest rates.
 
Following the data release, sterling hit 1.32 against the dollar for the first time since late July, an eight-week high. This marks a recovery of more than 4% from the rate’s mid-August lows. The pound traded at around seven-week highs in the upper end of the 1.12-1.13 band against the euro. However, the gains proved short-lived as the pound later tumbled on negative Brexit headlines from the informal meeting of EU leaders in Salzburg, including that the UK would reject the EU’s latest offer on the Irish border issue.
 
The kiwi dollar strengthened overnight after Q2 GDP surprised to the upside. Growth accelerated from 0.5% to 1.0% quarter-on-quarter and from 2.6% to 2.8% year-on-year. This saw sterling-kiwi fall over 0.4% to push back below 1.98.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1256 1.1284 1.0991 2.60%
GBP/USD 1.3152 1.3215 1.2785 3.25%
EUR/USD 1.1684 1.1734 1.1526 1.77%
GBP/AUD 1.8125 1.8401 1.7508 4.85%
GBP/NZD 1.9786 2.0031 1.9167 4.31%
GBP/CAD 1.6999 1.7190 1.6596 3.46%

Today's Market Highlights

The UK’s data releases continue with August Retail Sales (09:30 BST). Slower growth would likely weigh on the pound this morning, particularly if growth slows more than forecast, although a surprise to the upside could instead see sterling strengthen. The pound will also react to any further Brexit headlines from Salzburg today.
 
In the afternoon, the dollar will keep an eye on weekly Initial Jobless Claims and Existing Home Sales, both of which could be broadly supportive (13:30, 15:00). The bigger move would likely stem from any additional trade headlines and the corresponding implications for risk sentiment. The dollar strengthens as a safe haven during times of risk aversion.
 
On the euro side, worsening Consumer Confidence (15:00) could weaken the single currency but may have a fairly limited effect overall.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP Retail Sales MoM (Aug) -0.2% 0.7%
9:30am GBP Core Retail Sales MoM (Aug) -0.2% 0.9%
9:30am GBP Retail Sales YoY (Aug) 2.3% 3.5%
9:30am GBP Core Retail Sales YoY (Aug) 2.5% 3.7%
1:30pm USD Initial Jobless Claims (14 Sep) 210K 204K
3:00pm USD Existing Home Sales MoM (Aug) 5.35M 5.34M
3:00pm EUR Prelim Consumer Confidence (Sep) -2.0 -1.9

Caxton