The British pound has posted losses in the Thursday session. In North American trade, GBP/USD is trading at 1.3328, down 0.36% on the day. On the release front, retail sales sparkled on both sides of the pond. British retail sales jumped 1.3%, crushing the estimate of 0.5%. In the U.S, core retail sales climbed 0.9%, its strongest gain since November. This easily beat the forecast of 0.5%. It was a similar story for retail sales, which improved 0.8%, above the forecast of 0.4%. There was more good news from the U.S employment front, as unemployment claims dropped to 218 thousand, below the estimate of 223 thousand.
Consumer spending has looked strong in the second quarter. Retail Sales in May posted a strong gain of 1.3%, after an even stronger gain of 1.6% in April. Both readings easily beat their estimates. An unusually warm May and the Royal Wedding contributed to stronger consumer spending, a key driver of economic growth. Another factor that may have coaxed consumers to spend more is lower inflation, which remained at 2.4% in May.
The markets had priced in a rate hike from the Federal Reserve on Wednesday, and the Fed didn’t disappoint. The central bank raised interest rates by a quarter-point, to a range between 1.75 percent and 2.00 percent. Fed Chair Jerome Powell sounded hawkish in his press conference, saying that the economy was performing well and that “overall outlook for growth remains favorable”. This message echoed the rate statement, in which policymakers said that “economic activity has been rising at a solid rate”, pointing to stronger consumer spending and business investment. What was may have been the most notable development was that the Fed rate projections were revised upwards, predicting two additional rate hikes in 2018, for a total of four hikes. Until now, the Fed had projected three rate hikes this year. This represents a nod to the strength of the U.S economy and could boost the dollar against its rivals.