The GBP/USD pair oscillates below the 1.2700 level early Friday, struggling to build on the previous day’s strong corrective bounce ahead of high-impact economic data from the UK and US.
The Sterling has gained some ground after rallying around 85 pips from 1.2610 support on Thursday. Traders seem reluctant to push the British Pound higher against the Greenback with key inflation and growth figures due from both economies. Let’s analyse the recent GBP/USD price action and what to expect from the upcoming UK and US data releases.
GBP/USD Price Outlook: Struggling Below 1.2700 After Bounce
The British pound took a major hit against the US dollar in December. Things were looking grim for the pound as the exchange rate kept dropping throughout the European and American trading sessions. At one point, it hit 1.2610, the lowest it had been all week.
Cable’s slump early in the day came despite mostly upbeat UK economic data, pointing to resilience in the labour market and solid wage growth. However, concerns over slowing GDP growth in Q4 and rising speculation for Bank of England rate cuts next year kept pressure on the British Pound.
Meanwhile, in the US, upside surprises in retail sales, jobless claims and manufacturing numbers had minimal impact on the Greenback. Instead, the US Dollar extended declines as Treasury yields pulled back across the curve, reflecting scaled-back Federal Reserve tightening bets following the latest US growth figures.
Softer yields boosted non-yielding currencies at the expense of the US Dollar’s safe-haven appeal. This dynamic and stabilising risk sentiment fueled Sterling’s strong intraday recovery from 1.2610 support.
However, the GBP/USD bounce lost momentum on Friday after facing resistance around 1.2700 as traders exercised caution ahead of upcoming UK and US data releases.
Focus Shifts to UK Retail Sales, GDP and US Inflation Figures
With the Federal Reserve and Bank of England firmly in data-dependent policy mode, key economic releases from both countries will likely significantly impact GBP/USD direction over the next 24 hours.
UK Retail Sales and GDP Eyed for Growth Signals
The UK economic calendar brings November retail sales statistics and the third estimate of Q3 2023 GDP due during European trading hours on Friday.
Retail Sales
Customer spending accounts for over 60% of the total GDP here in the UK. That’s a massive portion! So when those monthly retail sales figures come out, it’s always a big moment.
But some worrying signs make the numbers less certain. British shoppers are facing a lot of uncertainty right now. Inflation is still painfully high, interest rates keep climbing, politics is chaotic, and talk of a global recession looms. So, while economists expect a small increase in sales, the bigger picture risks leaning negative.
GDP
In Q3 UK GDP, the final estimate confirms 0.4% quarterly growth, matching the previous reading. But monthly figures already released for September and October signal the economy likely contracted in Q4 – meeting the technical definition of a recession.
So, while backwards-looking Q3 GDP is unlikely to be a big market mover, further evidence of slowing UK growth reinforces the case for BOE rate cuts and could keep pressure on the British Pound against the US Dollar.
US Core Inflation Data to Shape Fed Policy Outlook
Markets expect the core PCE metric to have risen 0.2% month-over-month in November, cooling slightly from the 0.3% growth in September and October. The annual rate is slowing fractionally to 5.0% from 5.1%.
However, given several recent upside surprises in CPI and PPI reports, there is potential for higher-than-expected PCE inflation. An acceleration rather than a slowdown in the Fed’s favourite price gauge could push back expectations for rate cuts.
Conversely, any signs of slowing core inflationary pressures may raise hopes that the FOMC could engineer a soft landing for the US economy. This would validate market expectations for Fed rate cuts later in 2024, potentially weighing further on the Greenback to Sterling’s benefit.
GBP/USD Outlook: UK and US Data to Direct Short-Term Trend
With UK growth worries intensifying while US recession risks seem to moderate, the current GBP/USD outlook remains complicated for now. This makes it difficult to predict a directional bias for the pair until we receive more clues from upcoming economic data.
The British Pound’s rebound from recent lows looks fragile, given BOE easing expectations amid the dismal domestic outlook. Meanwhile, in the US, the Fed’s relentless inflation fight and the resilience of American consumers provide relative support for the Dollar.
As such, expect the Cable exchange rate to continue trading without clear direction under the 1.2700 handle. But the upcoming UK retail sales, GDP and US PCE inflation figures may spark a breakout from this range.
Weaker than forecast numbers from Britain could trigger a wave of BOE rate cut bets, sending the GBP/USD pair back towards the 2022 lows below 1.2200. Conversely, any positive UK surprises combined with easing US price pressures may fuel a rally towards September highs around 1.1700.
