GBP/USD is struggling to recover despite encouraging UK economic data. UK retail sales growth unexpectedly rose in September, underpinned by online jewelers reporting a strong demand for Gold, BBH FX analysts report.

BOE easing expectations cap sterling rebound

"Total retail sales volumes increased 0.5% m/m (consensus: -0.4%) vs. 0.6% in August. Excluding auto fuel, retail sales volumes increased 0.6% m/m (consensus: -0.6%) vs. 1.0% in August. Over Q3, sales volumes are up 0.9% and suggests UK real GDP growth (due November 13) will likely overshoot the BOE’s 0.3% q/q projection."

"UK private sector growth momentum surprises to the upside in October. The composite PMI improved to a 2-month high at 51.1 (consensus: 50.5) vs. 50.1 in September. The services PMI also rose to a 2-month high at 51.1 (consensus: 51.0) vs. 50.8 in September while the manufacturing PMI increased to a 12-month high at 49.6 (consensus: 46.6) vs. 46.2 in September."

"The swaps market price in roughly 25% odds of a 25bps cut to 3.75% at the next BOE policy on November 6. Over the next 12 months, the swaps market implies 50bps of easing and the policy rate to bottom at 3.50%. The expected fiscal drag from the upcoming UK budget (scheduled for November 26) will likely leave room for the BOE to deliver more easing. As such, we expect further GBP underperformance versus EUR because the ECB is likely done easing."