The health of the UK economy seems to deteriorate with each economic release – the British pound is paying for it. Today, the currency dropped to a fresh 13-month low against its US counterpart while testing a major level of support read in a 38.2 percent retracement of a seven year trend at 1.83.
And similar to today’s price action representing just another step forward in a nine-month trend, the event risk crossing the wires seemed just further confirmation that the economy was sinking quickly. The morning’s activity began with the Nationwide Housing Price data for the August. The second of the major residential inflation indicators for the month, the indicator reported a drop in home prices that was more aggressive on a monthly and annual basis than the markets were expecting. With the BoE in mind, the 10.5 percent deflation through the year (the fastest pace of contraction in 18 years) is certainly the more pressing number. Later in the London session, the CBI retail data proved there was reason to doubt the ONS’s report of a rise in retail sales through July. The less volatile report revealed sales activity was the weakest it has been in 25 years. With UK activity tumbling and the US data finally showing signs of improvement, GBP/USD’s direction comes as little surprise.