GBP/USD dips as UK Retail Sales plummet, raising recession concerns

• Retail Sales Plunge: Pound Sterling drops against US Dollar as UK retail sales witness a staggering -3.2% month-over-month decline.
• BoE Policy Concerns: Bleak retail data raises doubts about Bank of England's policy tightening amid recession fears.
• Mixed US Data Influence: GBP/USD impacted by contrasting US data, with improved consumer sentiment but lower home sales.

The Pound Sterling (GBP) slumped against the US Dollar (USD) after the Office for National Statistics (ONS) revealed that retail sales plunged sharply, which could deter the Bank of England (BoE) from keeping policy tight without tapping the economy into a recession. Mixed data from the United States (US) sponsored a leg-down in the major, as the GBP/USD exchanged hands at 1.2687 after hitting a daily high of 1.2714.

Pound Sterling faces headwinds as poor retail data raises concerns, while mixed US indicators contribute to market volatility

Besides that, Chicago’s Federal Reserve (Fed) President Austan Goolsbee said that they (Fed) need more data before beginning to ease monetary policy to determine an appropriate level of restrictiveness. On the data front, Consumer Sentiment in the US improved sharply, according to a University of Michigan (UoM) poll, while inflation expectations were trimmed for one and five-year periods.

The Consumer Sentiment rose to 78.8, surpassing both forecasts and the previous month's increase of 69.7. Additionally, Americans expect a decrease in inflation, as expectations for one year declined from 3.1% to 2.9%, and for the next five years, it cooled from 2.9% to 2.8%.

US Existing Home Sales in December slid to their lowest level in over 13 years. The sales slumped by -1% month-over-month, falling from 3.82 million to 3.78 million, which is below both the previous month's figure and the forecast.

Across the pond, retail sales in the UK plunged a staggering -3.2% MoM, following an increase of 1.4% in November, and below forecasts for a 0.5% contraction. The release poured cold water on Sterling’s rally, which benefited from a red-hot inflation report, which, according to sources cited by Reuters, “the December CPI surprise was a blip.”

 Ahead of the day, the San Franciso Fed President Mary Daly is expected to cross wires ahead of the blackout period, which is ahead of the first monetary policy meeting of 2024.

GBP/USD Price Analysis: Technical outlook

From a technical point of view, GBP/USD is trading sideways but tilted to the downside after peaking at around 1.2785 on January 12, but sellers had failed to crack the 50-day moving average (DMA) at 1.2616. if buyers want the rally to continue, they must drag prices bove 1.2700, followed by 1.2785, ahead of the 1.2800 mark. Conversely, if sellers achieve a daily close below January’s 18 open of 1.2676, that would form a ‘tweezers top,’ opening the door for further losses. First support is seen at the 50-DMA at 1.2616, followed by 1.2600 and the 200-DMA at 1.2547.