The British pound has posted considerable losses in the Thursday session. In North American trade, GBP/USD is trading at 1.3176, down 0.66% on the day. On the release front, British CBI Realized Sales plunged in October, with a reading of -36 points. This surprised the markets, which expected a gain of 14 points. In the US, unemployment claims climbed to 233 thousand, just below the forecast of 235 thousand. As well, Pending Home Sales rebounded, coming in at 0.0%. The indicator has struggled, recording five declines in the past 6 months.
The pound recorded strong gains on Wednesday after British Preliminary GDP beat expectations in the third quarter. However, the rally proved to be short-lived, as the currency has given up much of these gains on Thursday. GBP/USD responded with losses after a dismal British CBI Realized Sales report. The soft reading, which was the sharpest drop since March 2009, was all the more surprising because the September reading showed a strong gain of 42 points. High inflation is likely having a chilling effect on consumer spending, a key driver of economic growth. The BoE will be taking note of the sharp drop in retail sales, as the Bank must decide at the November 2 meeting whether to raise rates for the first time in a decade. Policymakers remain divided over a rate hike, which would be the first in a decade. Proponents of a rate increase point to inflation running at 3.0%, above the Bank’s target of 2.0%, but opponents argue that the economy is showing signs of weakness and a rate hike could hamper economic growth.
It’s report card day for the US economy on Friday, with the release of Advance GDP. The markets are forecasting a gain of 2.5%, after Preliminary GDP posted a sharp gain of 3.0%. US economic numbers remain strong, and the labor market is close to capacity. At the same time, inflation has not moved higher, and wage growth has been weaker than expected. Despite the lack of inflation, the odds of a December rate hike have soared in recent weeks, with the odds of a rate raise at 96%, according to CME FedWatch.
