GBP/USD: UK economic optimism countered by worsening international relations

GBP/USD has been benefiting from upbeat UK retail sales but US-China spat is taking their toll. The Brexit impasse, rising US coronavirus cases and further international tensions may bring the cable down, FXStreet’s analyst Yohay Elam informs.

Key quotes

“UK Retail Sales jumped by 13.9% in June, beating estimates and sending yearly levels to -1.6%, also exceeding estimates. The upbeat consumption is attributed to the gradual reopening of the economy, deferred expenditure, and also the government's furlough scheme which has kept incomes high.” 

“Markit's preliminary Purchasing Managers' Indexes for July will likely show ongoing improvement in sentiment as Britain is getting the virus under control. The same cannot be said about the US, where infections topped four million and the number of daily deaths remains above 1,100. Statistics from Florida, California, Texas, and other states will be closely watched.”

“Sino-American tensions have intensified after China announced the closure of the US consulate in Chengdu – a tit-for-tat response for America's move against the Chinese mission in Houston. US Secretary of State Mike Pompeo added fuel to the fire with a highly critical speech of China and its president Xi Jinping, calling him authoritarian and tyrant. Nevertheless, Pompeo stressed that the trade deal signed by the world's largest economies early this year remains intact. Overall, the market mood has soured – supporting the safe-haven dollar – but a full-blown sell-off is not on the cards.” 

“Brexit is going nowhere fast. Chief EU Negotiator Michel Barnier and David Frost, his counterpart across the channel, acknowledged the lack of progress but clarified that talks will continue. The British press suggested Prime Minister Boris Johnson contemplated abandoning the negotiating table. Investors expect progress only closer to the expiry of the transition period at the end of the year.”