• The UK Retail Sales came in at -1.4% MoM in March which is a downside surprise.
• Brexit issues might come to fore, weighing on the GBP.
• Fed- BoE divergence in the monetary policy also weighs on the UK sterling.

The UK sterling dropped against the US dollar during Friday trading session. The downbeat UK retail sales is the rationale behind the move.

The UK retail sales arrived at -1.4% over the month in March againstthe expectation of -0.3% expected and -0.5% previous. The core retail sales, stripping the auto motor fuel sales, stood at -1.1% MoM vs. -0.4% expected and -0.9% previous.    

However , the UK retail sales rose by 0.9% in March versus 2.8% expected and 7.2% prior meanwhile the core retail sales decreased by 0.6% in the reported month versus 0.7% expectations and 4.7% previous.

Moreover Brexit issues might come to the fore, weighing on the pound. According to the Financial Times, ”UK prepares law to give ministers power to tear up Northern Ireland post-Brexit trade deal.” The UK government is preparing legislation that will give ministers sweeping powers to tear up the post-Brexit deal governing trade in NI.

Meanwhile, David Frost who negotiated the Brexit deal, and other  Senior Conservatives, have argued for large parts of the agreement between the UK and the EU to be set aside following evidence it is harming trade and creating barriers between Great Britain and Northern Ireland. Any decision to delay the additional checks would spark a fresh row with Brussels, and this would likely weigh on the pound. Brussels has accused British Government of seeking to U-turn on its obligations.

Elsewhere, hawkish Fed strengthens the greenback. Recently, Fed Chief Jerome Powell said that moving a little quicker is appropriate and a 50bps hike will be on the table for the May meeting. He also added that the economy is performing strongly, and the labor market remains tight. Earlier, St. Louis President James Bullard reiterated that the Fed is behind the curve and will not have a hard landing. He emphasized that a 75bps hike had been done, and the world did not come to an end. And on Thursday, San Francisco Fed President Mary Daly noted that the Fed “will likely” raise rates by 50 bps at a couple of meetings.

On the other hand, BoE’s Catherine Mann said on Thursday that she would need to look at whether 25 bps or additional interest rates hikes are required so the BoE could tame inflation. She also added that “If we see rising energy prices and slowing sales, then, in some sense, we are already in stagflation; though, it is a little premature to use such a term.”

GBP/USD 4 Hours Chart:

Support: 1.3007 (S1), 1.2981 (S2), 1.2939 (S3).

Resistance: 1.3075 (R1), 1.3116 (R2), 1.3142 (R3).

The disappointment UK data and the Fed- BoE divergence weighs on the pound. We expect a bearish trend for GBP/USD.