During the mid-North American session on Friday, the Pound Sterling demonstrated resilience, trading at 1.2617 and registering a 0.14% gain. The economic data from the United States initially tempered the upside but was later offset by a robust UK retail sales report, marking the second consecutive day of strength for the GBP/USD pair.
Pound Sterling Finds Support in UK Retail Sales Despite Mediocre GDP
The GBP/USD pair received support from a stronger-than-expected UK retail sales report, with January data showing a significant rise of 3.4% from December, marking the most substantial increase in three years. This positive momentum countered Thursday’s GDP report, indicating a potential recession in the UK economy in the second half of 2023 due to elevated interest rates set by the Bank of England (BoE).
In contrast, economic data from the United States presented a mixed picture. The January US Producer Price Index (PPI) exceeded expectations by surging 0.9% YoY, with the Core PPI posting a surprising jump of 2%, surpassing estimates of 1.6%. However, Building Permits dropped by -1.5%, and Housing Starts plummeted by -14.8%, declining from 1.562 million to 1.331 million.
A University of Michigan (UoM) poll indicated an improvement in US Consumer Sentiment, rising from 79.0 to 79.5 in February. Confidence in lower inflation was noted, with expectations for one year ticking to 3%, while estimates for a five-year period remained unchanged at 2.9%.
The positive economic data supported an increase in US Treasury yields, but the US Dollar Index (DXY), which tracks the USD against other currencies, dropped by 0.10%, reaching 104.17.
Federal Reserve Comments and Rate Cut Expectations
Federal Reserve speakers, including Atlanta’s Fed President Raphael Bostic and San Francisco’s Fed President Mary Daly, provided insights into the monetary policy. Bostic expressed the need for more data to confirm easing inflationary pressures, leaving the possibility of rate cuts open. Daly emphasized patience on inflation, stating that there is more work to do.
Market expectations revealed a less dovish stance by the Federal Reserve, with traders pricing in 98 basis points of rate cuts by the end of the year, according to data from the Chicago Board of Trade (CBOT).
GBP/USD Technical Outlook
From a technical perspective, the GBP/USD appears to have found support around the 200-day moving average (DMA) at 1.2562, bouncing off this level twice. While this could be considered bullish, the next resistance is located at the 50-DMA at 1.2671 before potentially challenging the 1.2700 level. Conversely, if sellers push prices towards the 1.25 handle, a re-test of the 200-DMA and the current week’s low of 1.2535 is anticipated, with 1.2500 as a critical level of support.
