GBP/USD regains 1.2200 amid firmer UK consumer spending, cautiously optimistic markets

• GBP/USD picks up bids to reverse the pullback from six-month high.
• UK’s BRC Like-For-Like Retail Sales improved in November.
• US Dollar retreats amid softer inflation expectations but strong data keeps Greenback bears off the table.
• Pre-Fed blackout, light calendar to restrict short-term moves and may allow traders to pare recent losses.

GBP/USD renews its intraday high around 1.2210 as it reverses the week-start pullback from a six-month top during Tuesday’s Asian session. The Cable pair’s latest run-up could be linked to the US Dollar’s retreat amid dovish expectations from the US Federal Reserve and the UK’s firmer data.

That said, the British Retail Consortium (BRC) Like-For-Like Retail Sales jumped 4.1% YoY in November versus 1.2% prior. Even so, Reuters said, “British consumer spending ticked up last month at a rate that greatly lagged behind inflation, according to surveys on Tuesday that underscored the pressure on household budgets ahead of the Christmas holidays.”

Elsewhere, US inflation expectations per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data challenge the recent hawkish bias over the US Federal Reserve (Fed) by taking a U-turn from a one-month high. The latest prints of the 5-year and 10-year inflation expectations portray a pullback from the one-month high to 2.46% and 2.39%, respectively.

It should be noted that the downbeat UK data and firmer US statistics allowed the GBP/USD pair to reverse from the multi-day top on Monday.

Final readings of the UK’s November month S&P Global/CIPS Composite PMI eased to 48.2 versus 48.3 initial forecasts, whereas the S&P Global/CIPS Services PMI confirmed the 48.8 flash estimates.

On the other hand, US ISM Services PMI rose to 56.5 in November versus 53.1 market forecast and 54.4 previous readings whereas the Factory Orders also registered 1.0% growth compared to 0.7% expected and 0.3% prior. Further, S&P Global Composite PMI improved to 46.4 versus 46.3 initial estimations while the Services counterpart rose to 46.2 compared to 46.1 flash forecasts.

Besides the UK data, hopes of China’s fast recovery from Covid also seemed to have favored the GBP/USD rebound. Reuters reported on Monday that China is on course to downgrade its management of COVID-19 from a top-level Category A infectious disease to a less strict Category B disease as early as January. The news came after Chinese President XI Jinping termed the previous jump in the virus cases as Omicron and mostly of mild nature.

Against this backdrop, S&P 500 Futures print mild gains despite Wall Street’s downbeat close whereas the US 10-year Treasury bond yields retreat to 3.57% after rising eight basis points (bps) the previous day.

To sum up, mixed sentiment in the market and an absence of major data, and optimism surrounding China and the pre-Fed blackout, allowed GBP/USD to stay firmer. However, the bulls may have limited upside room as the Bank of England (BOE) hawks seem less convincing, and the chatters surrounding the UK’s economic transition have turned grim as of late.

Technical analysis

Unless providing a daily closing below the 200-DMA support near 1.2135, the GBP/USD buyers remain hopeful.