GBP/USD hovers below 1.2150 after retracing recent gains

• GBP/USD faces a challenge on risk-off sentiment in the market.
• Pound Sterling weakens on market caution regarding the BoE interest rate trajectory.
• US Dollar received downward pressure after Fed Powell’s comments on Thursday.
• Upbeat US bond yields contribute support to underpinning the Greenback.
• US Jobless Claims declined to 198K the lowest level since January. While Existing Home Sales fell 2.0%, the lowest level since 2010.

GBP/USD retreats from the recent gains on risk-off sentiment, trading lower around 1.2130 during the Asian session on Friday. However, the pair faced upward support in the previous session from a weakened US Dollar (USD) following comments by Federal Reserve (Fed) Chairman Jerome Powell.

Powell made it clear that if there's convincing evidence of growth exceeding expectations or if the labor market stops progressing, the Federal Reserve could consider tightening monetary policy further.

Emphasizing that the central concern remains inflationary risks, Powell highlighted the importance of addressing potential economic imbalances. However, the policymaker indicated that the central bank is not planning to raise rates in the short-term providing support for the GBP/USD pair.

The US Dollar Index (DXY) rebounds from the recent losses, bidding higher around 106.33. This could be attributed to the higher US Treasury yields, coupled with robust economic data from the United States (US).

United States (US) job data showed the economy remains solid. The weekly Initial Jobless Claims have dropped to their lowest level since January, signaling a solid and resilient job market. The report showed that Jobless Claims declined to 198K, which fell short of the market expectations of 212K for the week ending October 14.

On the other hand, Existing Home Sales Change fell 2.0% MoM in September, suggesting challenges in the housing market. The decline in existing home sales is particularly noteworthy, pointing to the negative impact of higher mortgage costs on housing market confidence.

Additionally, geopolitical tensions indeed have the power to send market sentiment on a rollercoaster ride. The ongoing situation in Israel, marked by preparations for a potential ground invasion of Gaza, introduces a layer of uncertainty for traders involved in the GBP/USD pair.

The scheduled address by US President Joe Biden on Thursday underscores the global significance of the matter, indicating potential impacts on a broader scale. Investors will likely be closely monitoring developments for their potential influence on currency markets.

During a relatively quiet session for major reports in the US. While Federal Reserve officials Logan, Mester, and Harker are scheduled to speak, it's anticipated that their speeches won't bring any unexpected developments.

On the other side, the GBP/USD pair is facing headwinds due to the uncertain trajectory of the Bank of England's (BoE) upcoming policy decisions.

The recent consumer inflation data from the United Kingdom, disclosed on Wednesday, showed a resilient headline CPI at 6.7% in September, defying expectations of a slight decrease to 6.6%. This unexpected result has triggered speculation about a potential BoE rate hike in November.

Adding to the complexity, earlier this week, the UK Office for National Statistics (ONS) reported a minor slowdown in wage growth for the three months leading up to August. This development provides the BoE with an opportunity to consider maintaining interest rates at their current level.

The Pound Sterling is gearing up to conclude the trading week with a focus on UK Retail Sales data. Median market forecasts indicate an anticipated decline in September's Retail Sales, with a projected negative growth of -0.1%, in contrast to the 0.4% increase observed in August.

This data will likely draw attention from traders and analysts, shaping the narrative for the British Pound's performance at the end of the week.