UK Retail Sales Decline in October Amid Budget Uncertainty
British retailers experienced a drop in sales last month, as uncertainty ahead of the autumn Budget weighed on consumer spending, according to official figures. Clothing stores were hit particularly hard, with industry data suggesting that mild October weather deterred shoppers from purchasing warm winter clothing.
The Office for National Statistics (ONS) reported a 0.7% decrease in retail sales volumes — a measure of the quantity of goods sold — following a revised 0.1% growth in September (previously estimated at 0.3%). The October decline exceeded economists' forecasts of a 0.3% drop.
ONS senior statistician Hannah Finselbach commented: “Retail sales fell back in October following three months of growth. The fall was driven by a notably poor month for clothing stores, but retailers across the board reported consumers held back on spending ahead of the Budget. “However, when we look at the wider trend, retail sales are increasing across the three-month and annual periods, although they remain below pre-pandemic levels.” Non-food stores reported a 1.4% drop in sales volumes in October, reversing the 2.3% growth recorded in September.
Euro Downtrend Deepens Amid Macro and Political Headwinds
The euro remains firmly in a downtrend, with EUR/USD falling in seven of the past eight weeks and breaking below the critical $1.05 support level on Thursday. While the pair nears oversold territory based on its 14-day relative strength index (RSI), other technical indicators suggest further losses are likely.
The 21-day moving average has consistently capped any rebounds since early October, while the formation of a "death cross" — where short-dated moving averages dip below longer-dated ones — signals potential further declines. A break below the October 2023 low of $1.0448 could push the euro to its weakest level in two years.
Multiple macro and political challenges continue to weigh on the euro. Trade and tariff risks tied to Trump’s policy agenda, political instability in France and Germany, and the escalating conflict in Ukraine have all dampened sentiment. Investors seeking safe-haven assets have driven demand for German bunds, causing yields to slide across the curve. Additionally, weak Eurozone economic indicators, including today’s flash PMIs, are expected to disappoint, reinforcing the European Central Bank’s (ECB) dovish policy stance.
The bearish sentiment extends to the options market, where traders are paying a premium for puts betting on further EUR/USD declines compared to calls anticipating gains. Implied volatility on the euro has surged to its highest level since the U.S. election, underscoring the heightened uncertainty amid the ongoing selloff.
Dollar Gains Amid Fed Speculation and Geopolitical Tensions
Traders are closely watching for details on Trump’s policy agenda while scaling back expectations for aggressive Federal Reserve rate cuts. Comments from Fed policymakers this week offered little clarity, but the odds of a 25-basis-point rate cut next month have dropped significantly, now at 40%, down from 83% last week.
Geopolitical developments, particularly the escalating Russia-Ukraine conflict, have further boosted the dollar’s safe-haven appeal. The greenback continues to strengthen against the euro and sterling, though it faces resistance from the similarly safe-haven Japanese yen.
On the macroeconomic front, U.S. unemployment benefit applications unexpectedly fell last week to their lowest level since April, signalling a robust labour market. However, continuing claims — a measure of ongoing unemployment — rose to 1.91 million, the highest in three years. Meanwhile, a recession indicator derived from Federal Reserve regional indexes is declining, suggesting an increased likelihood of a "soft landing" or no recession scenario, reinforcing the narrative of U.S. economic resilience.
