The weaker than expected UK retail sales drove traders to sell the pound versus the dollar. After reaching a new year high, GBP/USD is falling close to a technical level following two consecutive days of sharp price declines.
February retail sales tumbled 0.8% from January. Economists had forecasted a contraction of only -0.5%. The negative tone of the report was reinforced as the January numbers were trimmed to 1.5% from 1.9%. The disappointing consumer numbers may force economists to trim their Q1 GDP estimates, a setback for Bank of England inflationary hawks who want to raise interest rates.
The disappointing consumer numbers comes on the heels of Tuesday's strong CPI data that showed inflation for 2010 rose by 4.4%, above estimates of 4.2%. The inflationary pressures had caused many short term interest rate traders to bring forward their estimates for a rate hike by the BOE and the GBP/USD rose to its highest level of the year at 1.6400.
However, yesterday's BOE meeting minutes disappointed traders as no new signs of rising interest rates were given by the central bank. This caused a sharp selloff in the GBP/USD which continued through today. Stops were triggered as the pair moved below the 1.6200 level to a low of 1.6148, roughly a 61.8% Fibonacci retracement of the move from the mid-March low of 1.5977. A breach below today's low would target the mid-March low.
To the upside, resistance is found at 1.6200, 1.6340, and 1.6400.
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