- The GBP/USD lacked a firm directional bias and remained range bound on Friday.
- Upbeat UK PMIs offset dismal retail sales numbers and supported the pound.
- USD’s renewed selling bias further extended support, although bulls lacked conviction.
GBP/USD lacked a firm directional bias and oscillated between tepid gains and minor losses around 1.3800 during the mid-European session.
The pair witnessed some intraday selling
As a result of dismal UK retail sales figures, which unexpectedly fell by 0.2% in September. The pair was sold intraday and fell to two-day lows near the 1.3770 area. Excluding motor fuel sales, core retail sales fell -0.6% m-o-m, adding to signs of economic weakness.
The Bank of England’s announcement comes in the wake of softer UK consumer inflation figures released earlier this week, deflating hopes of an imminent rate hike in November. This proved to be a key factor weighing on sterling. And additionally exerted some downward pressure on the GBP/USD pair, although the decline appeared cushioned.
Nevertheless, investors seem convinced that the Bank of England will eventually raise interest rates from record lows before the end of the year. Combined with stronger-than-expected UK PMI figures for October and a renewed selling bias in the US dollar. This helped limit the fall, rather helping the GBP/USD pair find some buyers at lower levels.
Moreover, reports that Evergrande transferred funds for a bond coupon to a trustee account helped ease concerns about a credit crunch in China’s property sector. As a result of this, the safe-haven dollar was not able to capitalize on Monday’s nice rally from three-week lows.
That said, higher US Treasury yields prevented investors from making aggressive bearish bets on the USD. And additionally limited the GBP/USD’s upside, at least for now. In fact, the yield on the benchmark 10-year US government bond held steady just below the 1.70% threshold, or the highest level since May touched on Thursday.
The Fed will have to adopt a more aggressive policy response
U.S. bond yields continued to benefit from the growing market acceptance that the Fed will have to take more aggressive action to contain stubbornly high inflation. Therefore, attention will remain on Fed Chairman Jerome Powell’s comments during a virtual press conference later Friday.
In addition to US bond yields and broader market risk sentiment, these factors will affect USD price dynamics and provide some momentum to the GBP/USD pair.