Pound Sterling Dips as Mixed UK Data and Fed Expectations Weigh

The Pound Sterling (GBP) weakened against the US Dollar (USD) on Friday, falling below the 1.2700 mark amid conflicting economic data and persistent hawkish signals from the Federal Reserve (Fed). While UK Retail Sales for May surprised to the upside, weak preliminary S&P Global/CIPS PMI data for June dampened the GBP’s appeal.

Conflicting Signals: Strong Retail Sales vs. Weak PMIs

The robust Retail Sales figures, showing a 2.9% monthly increase in May, initially boosted the GBP. However, the unexpected drop in the S&P Global/CIPS Composite PMI to 51.7, driven by slower growth in the services sector, counteracted this positive momentum.

This mixed data has created uncertainty about the UK’s economic outlook, with strong consumer spending juxtaposed against signs of slowing business activity.

Bank of England (BoE) and Federal Reserve (Fed) Policy Divergence

While the BoE maintained its wait-and-see approach after Thursday’s policy meeting, the market continues to price in a rate cut in August. The Fed, on the other hand, remains committed to its hawkish stance, with officials reiterating their preference for one rate cut this year despite growing market expectations for two.

Market Drivers: UK Economic Data and Fed’s Policy Path

  • UK Retail Sales Surge: Strong consumer spending in May suggests resilient demand despite high interest rates, raising concerns about potential inflationary pressures.
  • Weaker UK PMIs: The disappointing PMI data indicates a slowdown in business activity, attributed partly to uncertainty surrounding the upcoming general election.
  • Fed’s Hawkish Stance: The Fed’s continued commitment to its current policy path and reluctance to signal early rate cuts is supporting the US Dollar.

Technical Analysis: GBP/USD Struggles at Fibonacci Support

The GBP/USD pair is struggling to hold above the 61.8% Fibonacci retracement support level at 1.2667, with the 20-day and 50-day EMAs acting as further resistance. The RSI indicator suggests waning upside momentum, raising the possibility of further downside movement.