The British Pound (GBP) continues to face downward pressure against both the Swiss Franc (CHF) and the US Dollar (USD) following the release of disappointing UK retail sales data for September. Retail sales declined by 0.9% on a month-on-month basis, which is significantly worse than the expected -0.2% decrease and marks a sharp reversal from August's 0.4% expansion.
Yearly retail sales figures indicate a year-on-year decrease of 1%, a slight improvement from August's -1.3% year-on-year reading but still falling short of the expected minor contraction of -0.1%. This lackluster retail sales performance has led to market selling of the Pound, reflecting concerns that the UK's economic performance may lag significantly behind that of the US and Eurozone.
There is a prevailing belief that the Bank of England may choose to keep interest rates unchanged in November, which could further pressure the Pound.
One of the significant contributors to the decline in retail sales is elevated inflation, which has had a noticeable impact on consumer demand in the UK. High inflation figures observed since 2021 have resulted in declining retail sales volumes, indicating that consumers are buying fewer goods due to rising prices. However, the value of retail sales has continued to grow, suggesting that consumers are spending more despite the reduced sales volumes.
Adding to the economic challenges is a significant decline in consumer confidence, as revealed by GfK's consumer confidence survey for October. The Consumer Confidence Index fell by nine points to -30, primarily due to the cost-of-living crisis and the struggle to make ends meet. This decline raises concerns for retailers, especially as the holiday season approaches.
The deteriorating economic outlook is compounded by various factors, including the cost of heating homes, high fuel costs, surging mortgage and rental rates, and a slowing job market. Additionally, ongoing conflicts in the Middle East are contributing to growing unease among consumers.
Technical Analysis and Trading Insight
From a technical analysis perspective, there has been a breakout from a long-standing sideways channel to the downside. This suggests the Pound is likely to experience a significant decline, considering the economic disparities between the UK and Switzerland, including interest yields. The Swiss Franc (CHF) has outperformed many currencies this year, while the GBP has been struggling. This data indicates a forthcoming drop in the Pound's value, and recent retail sales and consumer confidence figures further reinforce this outlook.
In the current trading session, we are closely monitoring GBPCHF, looking for a potential sell-off around the 1.08900 region. GBPCHF is currently following a downward trajectory and is undergoing a corrective phase as it approaches the support and resistance zone at 1.08900, which also represents a key confluence zone of the previous 4-hour support and the 50% retracement zone.
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