GBP/USD rebounds from 1.2320 as dovish Fed policy bets weigh on USD Index, UK Retail Sales eyed

The GBP/USD pair has shown a recovery move after building a base around 1.2320 in the Tokyo session. The Cable is expected to extend recovery further as the US Dollar Index (DXY) has dropped further below 104.10 amid hopes of a pause in the policy-tightening spell by the Federal Reserve (Fed).

S&P500 futures have posted decent losses in early Asia as investors are getting cautious due to unresolved US borrowing cap issues. The deviation in proposed budget spending by the White House to Republican leaders has narrowed to $70 billion from the original proposal of $1 trillion. Meanwhile, House of Representatives Kevin McCarthy cited that his team is working on reaching a bipartisan.

However, US Treasury Secretary Janet Yellen is consistently warning that the Federal government will be out of funds by June 01 and could make default in some obligated payments.

The USD Index is looking to extend its downside journey towards 104.00 as a pause in a rate-hiking spell by the Fed would trim interest rate divergence with other central banks. Richmond Fed Bank President Thomas Barkin said on Thursday that the US labor market remains tight and added noted that some businesses are still saying that they need to raise prices, per Reuters. However, he added that higher interest rates and tight credit conditions by US regional banks have impacted heavily on demand.

On the Pound Sterling front, investors are awaiting the release of the United Kingdom Retail Sales data (April). As per the preliminary report, monthly Retail Sales are seen expanding by 0.3% against a contraction of 0.9% reported last month. While annual Retail Sales are expected to contract by 2.8% vs. a contraction of 3.1%. A rebound in retail demand could fuel inflationary pressures and create more troubles for the Bank of England (BoE).