GBP/USD licks BoE-inflicted wounds below 1.2540 hurdle ahead of UK GDP, US inflation clues

• GBP/USD bears take a breather around weekly low after BoE-induced slump.
• Cautious mood ahead of the key UK Q1 GDP, US inflation clues join mixed sentiment to prod Cable buyers.
• BoE couldn’t inspire Pound Sterling buyers despite 0.25% rate hike as Governor Bailey signalled sharp fall in British inflation.
• US debt ceiling talks, banking news also appear important to watch for fresh impulses.

GBP/USD stays defensive near 1.2520 even as it renews intraday high ahead of the all-important UK Gross Domestic Product (GDP) data during early Friday. Not only the pre-data positioning but the market’s downbeat expectations and fears of a positive surprise also allow the Pound Sterling to pare recent losses, especially amid the US Dollar inaction ahead of the US inflation clues.

The Cable pair slumped the most in seven weeks the previous day even after the Bank of England (BoE) lifted the policy rate by 25 basis points (bps) to 4.5%. Following the interest rate decision, BoE Governor Andrew Bailey delivered his remarks while saying, “We are not giving a directional steer on rates.” BoE’s Bailey added, “Good reasons to think CPI will fall sharply from April,” the same seemed to have drowned GBP/USD price following the news.

On the other hand, US Dollar Index (DXY) marked the biggest daily gains in two months the previous day despite mostly downbeat prints of the US data. That said, the US Producer Price Index (PPI) improved to 0.2% MoM for April versus 0.3% expected and -0.4% prior. More importantly, PPI ex Food & Energy, known as Core PPI, rose on MoM but eased on YoY. Further, US Initial Jobless Claims rose by 264,000 to push the level to the highest level since October 2021, which in turn escalated the risk-off mood and favored the US Dollar.

While tracing the greenback’s run-up, the market’s rush for safety amid fears surrounding the US debt ceiling expiry and banking fallouts seem to gain major attention. The risk-off mood not only propelled the US Dollar but also favored the US Treasury bonds.

As per the latest update, the postponement of the debt ceiling talks between US President Joe Biden and House Speaker McCarthy and a slump in the share price of PacWest Bancorp appear the main negative developments to weigh on the sentiment. Additionally, warnings from US Treasury Secretary Janet Yellen and Beth Hammack, Chair of the Treasury Borrowing Advisory Committee and Co-Head of Goldman's Global Financing Group, about US default, also threaten the market sentiment.

Moving on, the monthly data dump from the UK joins the preliminary readings of the first quarter (Q1) British GDP to direct immediate GBP/USD moves. That said, the UK think-tank National Institute of Economic and Social Research (NIESR) recently forecasted 0.3% GDP for 2023 and 0.6% for 2024 versus 0.2% and 1.0% previous estimations.

Apart from the UK Q1 GDP, preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for May, as well as the UoM 5-year Consumer Inflation Expectations for the said month, will also be important to watch for clear directions.

Technical analysis

GBP/USD justifies the downside break of a two-month-old ascending trend line, around 1.2540 by the press time, as well as bearish MACD signals, to favor the Cable pair sellers. However, an upward-sloping trend line from late March, around 1.2500 round figure by the press time, joins the oversold RSI (14) line suggesting a corrective bounce in the Pound Sterling price.