The pound reacted modestly to the data on retail sales in the UK
The British Pound (GBP) ended last week strengthening against the dollar to the level of 1.3790. The quotes maintained a modest intraday growth, although they could not gain a foothold above the resistance of 1.3800.
The Pound reacted rather modestly to the monthly retail sales data in the UK. In February, the volume of retail sales in the country fell less than expected, and the main indicator (excluding fuel) increased by 2.1%. At the same time, unexpectedly weak inflation growth and fears of further escalation of diplomatic tensions between the UK and China are deterring traders from aggressive purchases of the pound. It is worth noting that last Friday, China imposed sanctions against nine individuals and four organizations in the UK.
According to Silvana Tenreiro of the Bank of England, a number of scenarios may require a more relaxed monetary policy this year. Tenreiro's words were a reaction to the weak growth of inflation in the UK in recent months. The marked easing of monetary policy may also be a response to any new drop in key economic indicators. The Bank of England does not rule out a scenario with a reduction in the interest rate in the negative zone in the second half of 2021. As part of the quantitative easing program, the option of increasing the volume of purchases of securities will also be considered. At the same time, a scenario with a rapid recovery of consumer inflation after the end of lockdowns due to deferred demand is very likely. The high level of uncertainty leaves the Bank of England's meetings as unpredictable and interesting as possible for market participants.
In the forecast, I assume a decline in the pound/dollar exchange rate to 1.3725.