• UK retail sales expected to rebound in October
• US PPI and retail sales decline

The British pound has extended its losses on Thursday. In the European session, GBP/USD is trading at 1.2401, down 0.11%.

The pound is having a roller-coaster week. GBP/USD surged 1.8% on Tuesday following the soft US inflation print and climbed to a two-month high. However, the pound has since coughed up about half those gains and is trading at the 1.24 line. The UK releases retail sales on Friday, which could result in further volatility.

UK retail sales had a dreadful September, coming in at -0.9% m/m and missing the forecast of 0.2%. The markets are expecting a rebound in October, with a forecast of 0.3%. September was unseasonably hot, which led to fewer purchases of autumn clothing. Consumers remain deeply pessimistic about the economy and are being squeezed by higher heating and fuel costs, elevated borrowing costs and a softer job market.

On the inflation front, there was good news on Wednesday as inflation dropped to 4.6%, down sharply from 6.7% and below the forecast of 4.8%. This was the lowest level since October 2021 and inflation has finally dropped below 5%. However, the BoE has been stressing that the battle against inflation is far from over, and has projected that inflation won’t fall to the 2% target until late 2025.

In the US, producer prices fell 0.5% m/m in October, its largest drop since April 2020 and below expectations. The decline in gasoline prices was a major factor in the soft release. Retail sales for October dipped 0.1%, missing the estimate of 0.3% and snapping a six-month streak of gains. The weak numbers are further evidence that the US economy is cooling down.

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GBP/USD Technical

• GBP/USD is putting pressure on support at 1.2374. Below, there is support at 1.2312
• 1.2476 and 1.2522 are the next resistance lines

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