Home Forex GBP/USD Holds Above 1.2700 Ahead of UK Retail Sales and Michigan Sentiment Data

GBP/USD Holds Above 1.2700 Ahead of UK Retail Sales and Michigan Sentiment Data

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  • GBP/USD gains traction around 1.2708 amid weaker USD, risk-on sentiment.
  • UK CPI inflation rose for the first time in 10 months, rising to 4.0% year-on-year vs. 3.9% previously.
  • The Fed’s Bostic expects policymakers to begin cutting interest rates in the third quarter of this year.
  • Traders are looking ahead to December UK retail sales and a preliminary index of consumer sentiment in US Michigan due to be released on Friday.

The GBP/USD pair is trading lower for the third day in a row during Friday’s early Asian session. The major pair’s rise is supported by positive UK inflation data and risk sentiment. Investors are eyeing Friday’s UK retail sales report as fresh impetus, which is expected to show a month-on-month fall of 0.5% in December from 1.3% in November. GBP/USD is currently trading near 1.2708, up 0.08% on the day.

UK Consumer Annual Rate Price index (CPI) rose to 4.0% year-on-year from 3.9% in November, undermining market expectations of an early rate cut by the Bank of England (BoE). The number marked the first acceleration in ten months. Former BoE policymaker Michael Saunders said he did not think the latest data was inconsistent with a broader decline in underlying inflation.

However, traders reduced their bets on a BoE rate cut. Markets pegged a 50% chance of the BoE cutting borrowing costs by a quarter of a percentage point in May, down from an 80% chance on Tuesday. This in turn provides some support to the British Pound (GBP) and acts as a tailwind for the GBP/USD pair.

Late Thursday, the president of the Federal Reserve System (Fed) in Atlanta Raphael Bostic he expects politicians to start reducing interest rates in the third quarter of this year, when inflation is approaching the central bank’s target. The Fed Funds futures market is pricing in the first rate cut as early as March, according to CME’s FedWatch tool. However, the implied probability of a quarter-percentage-point rate cut in recent days fell to 57% on Thursday morning.

Investors will also be watching UK retail sales for December and a preliminary index of consumer sentiment in US Michigan on Friday. Market participants will take cues from the data and find trading opportunities nearby GBP/USD few.

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