On Friday, the UK unveiled extremely pessimistic data. In January, the UK retail sales tumbled by 8.2%. The data is significantly below the forecast and 5.9% lower than in the previous year. Moreover, retail sales excluding automobile fuel nosedived by 8.8%.
The situation is really gloomy. However, buyers of the pound sterling pushed the currency higher to 1.40. Why have markets ignored such a disappointing report? It is quite possible that traders consider this reading as a short-lived phenomenon. Such a slump was caused by lockdown measures imposed at the beginning of the year. At the moment, the epidemiological situation is getting better and people are receiving their doses of the coronavirus vaccine. Analysts suppose that in the following months, macroeconomic indicators will rise. That is why markets showed no reaction to such weak reports, betting on future positive data.
Notably, the recently published data on higher inflation alleviated concerns about a prolonged economic recovery. Of course, the UK economy was severely damaged, but it is getting back on track quite fast.
Since last September, the pound sterling has been confidently advancing. Moreover, the rise has accelerated in February. On Friday, the pound/dollar pair tested the psychological level of 1.40. It is a very important level for the British pound.
What is more, the weakening US dollar is supporting the pound sterling. The greenback dropped after the publication of the US labor market figures. The report signals that it is too early to expect a rapid economic recovery in the US. Jerome Powell was right saying that the US labor market would need more than a year to spread its wings again.
On Friday, traders were focused on the US business activity and existing home sales reports. Lower business activity may force the government to take additional support measures in the near future.
At the same time, the UK PMI data for February was quite strong. Thus, the indicator reached the level of 49.8 points, remaining slightly below the 50-point threshold that separates growth from contraction. Strong reports supported the decision of the Bank of England to avoid further easing. This, in turn, is also boosting the pound sterling. The pound/dollar pair has all chances to continue climbing. However, it will be rather difficult to consolidate above 1.40.