The Pound continued in its demise, losing nearly 1% on Friday and dropping below the 1.14 level for the first time since 1985.
Dismal retail sales
In August, UK retail sales were 1.6% lower than projected and 0.3% lower than in July. When auto motor fuel sales are excluded, core retail sales fell 1.6% monthly, versus an expected decline of 0.7% and an earlier decline of 0.4%.
On an annualized basis, UK retail sales fell -5.4% in August, below predictions of -4.2% and -3.2%, while core retail sales fell 5% in the reporting month, against forecasts of -3.4% and -3.1%.
As per ONS, all major sectors—food shops, non-food stores, non-store retailing, and fuel—fell throughout the course of the month. The last time this happened was in July 2021.
Food shop sales volumes decreased by 0.8% in August 2022, falling 1.4% below their COVID-19-free levels in February 2020.
August 2022 saw a 1.7% decline in automotive gasoline sales, which were 9.0% below February 2020 levels.
Along with the unfavorable UK figures, which make up the majority of the GDP, hawkish Fed bets and a rise in US Treasury yields are other factors putting pressure on the GBP/USD exchange rates.
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Given this, the most recent readings of the hawkish Fed bets from the CME’s FedWatch Tool indicate that the market has priced in the likelihood of the Fed raising interest rates by 0.75% and 1.0% at its meeting next week by 76% and 24%, respectively.
According to economists at MUFG, GBP/USD has further to slide in the context of rising financial market volatility given that the UK’s budget + current account deficit combined is likely to march around an eye-watering 15% of GDP, the downward GBP pressure will endure.
“A break below the low of 1.1406 will take us to levels not seen since 1985 when GBP/USD hit an all-time low of 1.0520,” they added.
Later today, the Michigan consumer sentiment index for September is due, projected to improve slightly from 58.2 to 60.0.
It looks like the next support could be in the 1.13 region, and if not held, the next bearish wave might take the GBP down to the psychological level of 1.10.