FX Focus: Pound on track to post weekly gains against euro and dollar despite slight decline

The pound fell against most of its major rivals on Thursday (25 August 2016) but remained on track to clinch weekly gains against most of its major peers. Having breached the $1.32 threshold for the first time in two weeks on Wednesday, sterling slipped by 0.28% against the greenback to $1.3194 and fell 0.50% against the euro to €1.1685.

Data released earlier in the day by the Confederation for British Industry showed British retailers enjoyed their strongest sales in six months in July.

Its sales volume index rose to +9 in July, its highest since February, from an initial slump after the Brexit vote to -14 a month earlier.

However, Fawad Razaqzada, market analyst at Forex.com, warned that while the report was the latest piece of data to dismiss the impact of Brexit, it was still too soon to draw conclusions over the real impact of the vote to leave the European Union.

The economy, Razaqzada explained, works at a much slower pace than the markets and in the short-term the pound could suffer a sharp pullback in the pound/dollar exchange rate.

"Speculators who bought the dip on the back of the improvement in UK data may begin to take profit [and] the dollar shorts may also ease the pressure ahead of the Jackson Hole symposium, which begins tomorrow," he said.

"While this much-talked about event could turn out to be a dump squib, some traders will be taking no chances."

Elsewhere, the euro gained 0.28% against the dollar to $1.1295, while the greenback was broadly unchanged against the yen at ¥100.51. Analysts suggested investors across the pond would adopt a cautious stance ahead of Federal Reserve chairwoman Janet Yellen's speech at the annual Jackson Hole Symposium on Friday (26 August).

"This event has often been used to warn about upcoming policy changes and whether that is the next hike or a more dovish Fed, we'll have to wait and see," said Oanda's senior market analyst Craig Erlam. "After all the build up to the event, I wouldn't be surprised if Yellen once again keeps her cards very close to her chest and the whole things becomes something of an anti-climax."