British Pound gains on BRC Like-For-Like Retail Sales data despite geopolitical tensions

GBP/USD rose after BRC Like-For-Like Retail Sales growth accelerated to 1.0% YoY in September, exceeding market forecasts.
Tensions in the Middle East and rising rate expectations continue to bolster safe-haven US Dollar demand.
Markets await key US inflation data and Fed official speeches for future policy direction.

GBP/USD inches higher after posting modest losses in the previous day, trading around 1.3220 during Asian hours on Tuesday. The pair appreciated as the British Pound (GBP) gained ground following the release of British Retail Consortium (BRC) Like-For-Like Retail Sales data. September sales increased by 1.0% year-on-year, outperforming forecasts of 0.7% and accelerating from 0.5% in the previous month. Additionally, Total Retail Sales growth picked up to 1.3% from 0.7%, though it remained below the 12-month average of 1.5%.

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Despite these gains, the GBP/USD pair may face headwinds as the US Dollar (USD) could rebound. Safe-haven demand for the Greenback could rebound amid escalating Middle East tensions sparked by a deadly attack on Saudi Arabia’s Riyadh airport.

The Saudi-led coalition fighting Yemen’s Iran-backed Houthis confirmed ongoing drone and missile strikes against Saudi target areas, while Yemen’s Armed Forces warned travelers that no Saudi airspace or airports, excluding Mecca and Medina, are safe. Meanwhile, traders continue to monitor potential supply developments, including prospects for increased Russian diesel supplies and a possible Russia-Ukraine energy ceasefire.

On the US monetary policy front, markets largely expect the Federal Reserve to hold interest rates steady at its upcoming meeting while pricing in another rate hike for December. This follows the Fed’s September rate increase, which marked its first rate hike since 2023.

Moving forward, investors are turning their attention to upcoming existing home sales data and scheduled remarks from Federal Reserve officials Christopher Waller, Tom Barkin, and Susan Collins. These updates come just ahead of Wednesday’s September inflation report, which is expected to play a crucial role in shaping the Fed’s next policy decision.

Hammack leans hawkish as inflation mindset fears bolster Dollar

Fed’s Hammack delivered a notably more hawkish tone, with the 8.4/10 FXS Speechtracker score standing above the 7.5/10 historical average, underscoring a stronger-than-usual bias toward tighter policy. The emphasis on the need for higher interest rates, a restrictive stance to re-anchor inflation at 2%, and concern that an inflationary mindset is becoming ingrained—amid neutral financial conditions and AI-driven demand pressures—signals a preference for swift, smaller rate tweaks to keep policy tight and responsive. Hammack’s focus on broad-based inflation, firm pricing power, and the duty to clarify the reaction function reinforces a message that the Fed should not assume inflation expectations are safely anchored and that the economy can withstand more tightening.

The FXS Fed Sentiment Index rose by 0.59 points to 138.92, firmly in hawkish territory and consistent with the elevated FXS Speechtracker score. This move higher reflects a clear shift toward tighter policy expectations, supporting a stronger Dollar narrative as markets price in the risk that the Fed may need to act relatively quickly to curb persistent inflation pressures.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.