GBP/USD bulls keep the reins at 10-month high above 1.2500 even as inflation woes recede

• GBP/USD clings to mid gains at the highest levels since June 2022, prints four-day uptrend at the latest.
• Softer US inflation, Fed concerns weigh on US Dollar and allow the Cable pair to remain firmer despite mixed UK data.
• Talks of easing inflation in Britain, absence of hawkish clues from BoE officials prod GBP/USD bulls.
• Cable buyers need to watch US Retail Sales, Michigan CSI and Consumer Inflation Expectations for further directions.

 

GBP/USD bulls take a breather at the highest levels in 10 months while making rounds to 1.2520-30 during early Friday. In doing so, the Cable pair remains firmer for the fourth consecutive day, after rising to the March 2022 peak the previous day, even as bulls seek more clues to extend the latest run-up.

GBP/USD cheered downbeat US inflation data, versus mixed figures at home, to portray the recent north-run to the multi-day high. Though, a cautious mood ahead of Friday’s US Retail Sales for March, the Michigan Consumer Sentiment Index (CSI) for April and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for the current month seems to challenge the pair buyers of late. On the same line could be the talks that the Bank of England (BoE) hawks are running out of steam.

On Wednesday, the US Producer Price Index (PPI) for March dropped to a four-month low of -0.5% MoM versus 0.0% expected and prior. Further, the PPI YoY also declined to 2.7% from 4.9% previous readouts, versus market forecasts of 3.0%. Additionally weighing on the hawkish Fed bets and the US Dollar is the US Initial Jobless Claims figure as it rose to 239K versus 232K expected and 228K prior.

That said, UK’s February 2023 Gross Domestic Product (GDP) eased to 0.0% versus 0.1% expected and 0.4% prior while the Industrial Production improved on YoY but declined on MoM during the stated month. Further details suggest an increase in the trade deficit and no change in the Index of Services (3M/3M) figure of 0.1% in February versus -0.2% expected. It should be noted that the UK NIESR GDP Estimate (3M) for March rose to 0.1% versus -0.1% expected and prior.

On a different page, UK Finance Minister Jeremy Hunt signaled an election may be held as early as spring 2024 as he expects the economy to have “turned the corner”, which in turn bolstered the GBP/USD prices the previous day. However, his comments like, “We do not believe a US trade agreement is imminent,” seemed to have probed the bulls afterward.

Additionally, Bank of England Chief Economist Huw Pill said on Thursday that they still expect Consumer Price Index (CPI) inflation to fall in the second quarter due to large rises in energy prices from last year dropping out of the annual comparison, per Reuters. "Bank staff continue to expect GDP to decline by 0.1% in 2023 Q1," added BoE’s Pill while also saying that the precise path of inflation may be bumpier than we expect.

Amid these plays, S&P 500 Futures print mild losses by the press time, despite the firmer closing of Wall Street. Further, the US 10-year and two-year Treasury bond yields fade the previous day’s recovery and exert downside pressure on the DXY.

Moving on, the aforementioned US data may allow the US Dollar to lick its wounds in case of a positive surprise. However, the GBP/USD pullback has limited scope unless BoE’s Silvana Tenreyro, who voted for a pause in the rate hike in the last monetary policy meeting, utters dovish words while speaking at the International Monetary Fund Spring Meetings.

Technical analysis

A successful rebound of a four-month-old previous resistance line, around 1.2375 by the press time, directs GBP/USD buyers towards the May 2022 high of around 1.2665.