GBP/USD dribbles around mid-1.2100s as UK Budget, US Retail Sales loom

• GBP/USD remains sidelined after reversing from one-month high.
• Hopes of growth-oriented UK budget underpins Cable’s rebound but BoE concerns weigh on prices.
• US Dollar traces firmer yields as Fed bets regain hawkish bias even as US inflation failed to impress traders.
• SVB headlines, bond market moves should also be watched for fresh impulse.

GBP/USD portrays the typical pre-data anxiety as it seesaws around 1.2150-60 during early Wednesday. That said, the Cable pair traders await the key UK Budget Report, as well as the US Retail Sales for February, amid mixed sentiment and sluggish markets.

It should be noted that the mostly mixed UK data and a lack of hawkish bias surrounding the Bank of England (BoE) seem to weigh on the GBP/USD prices amid the cautious mood ahead of an important event.

On Tuesday, UK’s headline ILO Unemployment Rate reprinted 3.7% for three months to January versus 3.8% expected whereas the Claimant Count Change improved to -11.2K in February from -30.3K (revised) prior and -12.4K market forecasts. Further details suggest that the Average Earnings Including Bonus matched 5.7% analysts’ estimations for three months to January, versus an upwardly revised 6.0% prior, whereas the ex-Bonus figures came in as 6.5% compared to 6.6% expected and 6.7% previous readings. Following the UK data, the odds of the Bank of England’s (BoE) easy rate hikes, or policy pivot, gained attention. “Growth in pay in Britain - which the Bank of England is watching closely as it weighs up whether to pause its run of interest rate hikes next week - lost pace in the three months to January, official data showed on Tuesday,” said Reuters.

Additionally, the latest survey details from the UK Incomes Data Research (IDR) suggests that British employers agreed on pay rises averaging 5.0% during the three months to the end of January, well above historic norms, and a tight labor market means pay settlements are likely to remain high.

On the other hand, the US Consumer Price Index (CPI) and CPI ex Food and Energy both matched 6.0% and 5.5% YoY market forecasts, versus 6.4% and 5.6% respective previous readings. It should be noted that the market consensus of 0.4% MoM for the CPI, versus 0.5% prior, also proved right but the CPI ex Food & Energy rose to 0.5% compared to 0.4% analysts’ estimates and prior. “The Federal Reserve is seen raising its benchmark rate a quarter of a percentage point next week and again in May, as a government report showed U.S. inflation remained high in February, and concerns of a long-lasting banking crisis eased,” said Reuters following the US inflation data release.

Talking about the risks, the US policymakers’ rejections of fears emanating from the latest fallouts of the Silicon Valley Bank (SVB) and Signature Bank seem to help the US Dollar regain its upside bias, especially amid recently firmer Fed bets. Late on Tuesday, US Senate Banking Committee Chairman Sherrod Brown and Federal Reserve Governor Michelle Bowman ruled out chatters suggesting the grim conditions of the US banking industry. However, Wall Street Journal (WSJ) reported that a raft of tougher capital and liquidity requirements are under review, as well as steps to beef up annual “stress tests” that assess banks’ ability to weather a hypothetical recession, according to a person familiar with the latest thinking among U.S. regulators. “The rules could target firms with between $100 billion to $250 billion in assets, which at present escape some of the toughest requirements,” per WSJ.

Amid these plays, S&P 500 Futures remain sidelined despite Wall Street’s upbeat closing. Further, the US 10-year Treasury bond yields grind near 3.68% by the press time, after posting the biggest daily gain in five weeks the previous day, while the two-year bond coupons extend the previous day’s recovery from the six-month low to 4.31% at the latest.

Looking ahead, UK Finance Minister Jeremy Hunt will announce the British budget in the Parliament around 12:30 GMT on Wednesday and will be able to propel the GBP/USD prices if matching the upbeat forecasts. Ahead of the event, Reuters quoted the Guardian newspaper as saying that UK Finance Minister Hunt would announce a 4 billion-pound childcare expansion for one and two-year olds in England. The news also added that UK’s Hunt is also expected to announce measures to improve skills training and give a green light to 12 investment zones.

Apart from the UK budget, US Retail Sales for February, expected -0.3% MoM versus 3.0% prior, will be important to watch for clear directions.

Technical analysis

A convergence of the 50-DMA and 23.6% Fibonacci retracement level of the GBP/USD pair’s upside from November 2022 to February 2023, around 1.2135, joins the bullish MACD signals and upbeat RSI (14), not overbought, to favor the Cable pair buyers.