The pair extended its selloff from the previous session’s move higher to the highest level since May 2018. Indications that lockdown restrictions in the UK could be extended combined with weaker than forecast UK Retail Sales data.
Retail Sales increased 0.3% MoM in December, while core sales (stripping the auto motor fuel sales) printed at 0.4% MoM, a reasonable pick up from November’s sharp contraction. Even so, the figures were well short of market expectations adding pressure to the Pound.
GBP/USD was further pressured by a mild rise in US dollar demand as equity markets soldoff. Fears over rising covid cases and tighter lockdown restriction in China prompted investors to take some profits off the table.
Optimism over Joe Biden’s stimulus and vaccine rollout could cap any meaningful recovery for the greenback and limit GBP/USD downside.
Attention will now turn to the release of UK PMI prints for January. A weaker than expected reading could add to concerns over the health of the UK economy and prompt more GBP/USD weakness.