- GBP/USD attracts fresh sellers on Friday and is pressured by a combination of factors.
- A recession in the UK revives bets for an early BoE rate cut and undermines the GBP.
- An uptick in the US bond yields lend support to the USD and contribute to the slide.
The GBP/USD pair continues with its struggle to find acceptance or build on the momentum beyond the 1.2600 mark and meets with some supply during the Asian session on Friday. Spot prices currently trade around the 1.2585 region, down less than 0.10% for the day, and remain on track to register modest weekly losses.
Thursday’s UK GDP report confirmed a technical recession, which, along with softer UK consumer inflation figures released on Wednesday, reaffirmed bets that the Bank of England (BoE) will start cutting interest rates soon. This, in turn, acts as a headwind for the British Pound (GBP) and keeps a lid on the GBP/USD pair’s recovery move from the vicinity of the weekly trough amid a modest US Dollar (USD) uptick.
A fresh leg up in the US Treasury bond yields turns out to be a key factor underpinning the Greenback, though reviving bets for an early rate cut by the Federal Reserve (Fed) might act as a headwind. The weaker US Retail Sales report released on Thursday suggested that the economy is cooling and should allow the Fed to start easing its monetary policy by June. This, in turn, might cap the US bond yields and the USD.
Apart from this, the underlying bullish tone around the equity markets might keep a lid on the safe-haven buck and contribute to limiting losses for the GBP/USD pair. Even from a technical perspective, the recent repeated failures to find bearish acceptance below the 100-day Simple Moving Average (SMA) warrant caution for aggressive traders and positioning for any further near-term depreciating move for the currency pair.
Market participants now look forward to the release of the UK Retail Sales data, which might influence the GBP price dynamics and provide a fresh impetus to the GBP/USD pair. Later during the early North American session, traders will take cues from the US macro data – the Producer Price Index (PPI), Housing Starts and the Preliminary Michigan Consumer Sentiment Index – and speeches by FOMC members.
Technical levels to watch