GBP/USD gains on weak US retail data, despite UK recession fears

• GBP/USD recovers from daily lows, trading up 0.17% after a soft US retail sales report.
• UK officially enters recession, with GDP shrinking in the final quarter of 2023.
• BoE Governors signal potential for higher interest rates, depending on economic indicators.

The Pound Sterling (GBP) climbed during the North American session following a soft retail sales report that lifted the major from a crucial technical level. Consequently, the Greenback (USD) is on the defensive as the GBP/USD trades at 1.2586, up 0.17%, after jumping off a daily low of 1.2541.

Pund Sterling edges high amid mixed US economic reports, BoE’s rate cut estimates

Data from the United States (US) was mixed as Retail Sales in January plunged -0.8% MoM, below December’s and estimates of -0.1%, due to a drop in sales at auto dealerships and gasoline service stations. In addition to that, stormy weather also weighed down affected sales.

At the same time, unemployment claims for the week ending in February 10 rose by 212K, less than forecasts and the prior’s reading of 220K. Claims were expected to bounce back after companies announced layoffs.

Earlier, the GBP/USD dropped to a daily low of 1.2541 as the Office of National Statistics (ONS) in the UK reported that the economy fell into a recession at the end of 2023. The Gross Domestic Product (GDP) shrank -0.3% in the three months to December, which confirmed the country entered a recession in the second half of 2023.

Recently, the Bank of England (BoE) Governors Megan Greene and Catherine Mann crossed the wires. Greene, one of the hawks of the BoE, said she thinks rates are going to be higher than before and would consider changing my view if measures of wage growth ease. Mann commented that she’s not surprised by weak growth in 2023, that the outlook for 2024 could be brighter, and that she would look toward business surveys like the Purchasing Managers Index (PMI).

Fed and BoE Interest rate expectations

According to the FedWatch Tool, the Fed is expected to cut rates in June, with odds at 51%, but some traders estimate the Fed would slash rates by 50 bps.  Meanwhile, the Bank of England (BoE) is seen cutting rates by 25 basis points in the August meeting.

GBP/USD Price Analysis: Technical outlook

The daily chart shows the GBP/USD is neutral to downward biased, hovering around the 200-day moving (DMA) at 1.2562. Buyers will need a decisive break above 1.2600 if they want to remain hopeful of shiting the pair upwards, with eyes at the 50-DMA at 1.2669. On the other hand, a daily close below the 200-DMA could pave the way for further downside.