GBP/USD: Retail Sales disappoint, more weak data to dampen BoE's hike expectations and sterling – MUFG

GBP/USD seems to have lost its footing following the disappointing Retail Sales data early Friday. Economists at MUFG Bank have brought forward their call for a hike to November. However, they believe the market is too aggressive pricing further rate hikes by the Bank of England, which should weigh on the pound.

Retail sales disappoint complicating BoE position

“Sales excluding fuel plunged 0.6% MoM, weaker than the expected 0.3% gain. This is a big miss but the 0.5ppt upward revision to August’s MoM decline (-0.7% from -1.2%) needs to be accounted for. Still, even with that revision this is a notable miss and follows the GfK Consumer Confidence Index drop earlier today from -13 to -17, again weaker than expected.”

“We’ll stick with November for now but the important point to make here is that the pricing in the market on BoE rate hike action going forward is still excessive and we believe incoming data will adjust lower those expectations even if the BoE does go by 15bps on 4th November. That, in our view, leaves the pound vulnerable to a correction lower.”