GBP flows: GBP modestly weaker after retail sales

GBP has traded slightly lower after UK June retail sales data came in weaker than expected, showing a 1.2% m/m decline. But there has been a lot of volatility in the last few months due to weather effects, so although the 3m/3m trend has weakened, we would not see this data as representing a reliable assessment of retail demand. GBP remains well supported near current levels on improved growth optimism related to the incoming Labour government, a somewhat more hawkish Bank of England stance relative to the ECB and the Fed, and some interest in UK assets due to relatively low valuations. But GBP itself is already quite expensive relative to the EUR here, and of course extremely expensive against the JPY, so we would see any GBP gains as more likely to come against the USD in a general USD decline. For now, expect EUR/GBP to hover just above 0.84.