GBP/USD remains capped below the 1.2600 mark following UK Retail Sales data

• GBP/USD remains on the defensive around 1.2590 in Friday’s early European session. 
• The UK Retail Sales came in stronger than expected, rising 3.4% MoM in January from a 3.3% decline in December.
• The weaker US Retail Sales in January prompted the possibility that the Fed might cut the interest rates sooner. 
• Traders will monitor the US January Producer Price Index (PPI), due on Friday. 

The GBP/USD pair remains capped below the 1.2600 psychological mark during the early European session on Friday. The upbeat UK Retail Sales data failed to boost the Pound Sterling (GBP) as investors are still concerned about the UK growth numbers for Q4, which indicated that the UK economy entered a technical recession. GBP/USD currently trades near 1.2590, losing 0.04% on the day.

The latest data released from the UK National Statistics showed that the nation’s Retail Sales rose 3.4% MoM in January from the previous reading of a 3.3% decline, stronger than the estimation of 1.5%. On an annual basis, Retail Sales increased by 0.7% YoY in January from a 2.4% fall in the previous reading. 

The UK Gross Domestic Product (GDP) figures for the fourth quarter, due on Thursday, indicated that the UK economy slumped into a technical recession in the second half of 2023 ahead of a general election expected this year. The GDP growth numbers report could put pressure on the BoE to cut rates as soon as May. However, the UK central bank policymakers want more evidence that inflation will return to the target rather than drift upwards again before they are confident about cutting rates. 

Across the pond, the softer US January Retail Sales sparked the possibility that the Federal Reserve (Fed) might cut interest rates sooner, which dragged the Greenback lower in the last session. US Retail Sales fell 0.8% MoM in January from a 0.4% rise in December, worse than the estimation of a 0.1% decline. Retail Sales Control Group came in at -0.4% MoM versus 0.6% prior, according to the US Census Bureau on Thursday. 

Investors will keep an eye on the US Producer Price Index (PPI) for January, due on Friday. If the report shows a weaker-than-expected outcome, this might exert some selling pressure on the US Dollar (USD). Additionally, the US Housing Starts, Building Permits, and UoM Consumer Inflation Expectations will be released later in the day. These events could give a clear direction to the GBP/USD pair.