- GBP/USD lacked any firm directional bias and remained confined in a range on Friday.
- Upbeat UK PMIs offset dismal Retail Sales figures and underpinned the British poud.
- Renewed USD selling bias further extended support, though bulls lacked conviction.
The GBP/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses, around the 1.3800 mark through the mid-European session.
The pair witnessed some intraday selling and dropped to two-day lows near the 1.3770 area in reaction to dismal UK Retail Sales figures, which unexpectedly dropped by 0.2% in September. Excluding the auto motor fuel sales, the core retail sales decline by -0.6% MoM and added to signs of weakness in the economic recovery.
This comes on the back of softer UK consumer inflation figures released earlier this week and dashed hopes for an imminent rate hike by the Bank of England in November. This turned out to be a key factor that weighed on the British pound and exerted some downward pressure on the GBP/USD pair, though the downside seemed cushioned.
Investors, however, seem convinced that the BoE will eventually hike interest rates from record lows before the end of this year. This, along with stronger-than-expected UK PMI prints for October and renewed US dollar selling bias, helped limit the downside, rather assisted the GBP/USD pair to find some buyers at lower levels.
Meanwhile, reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. The was seen as a key factor that failed to assist the safe-haven USD to capitalize on the previous day's goodish rebound from three-week lows.
That said, elevated US Treasury bond yields held investors from placing aggressive bearish bets around the USD and capped the upside for the GBP/USD pair, at least for now. In fact, the yield on the benchmark 10-year US government bond held steady just below the 1.70% threshold, or the highest level since May touched on Thursday.
Growing markets acceptance that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation continued acting as a tailwind for the US bond yields. Hence, the focus will remain on Fed Chair Jerome Powell's comments during a virtual panel discussion later this Friday.
This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the GBP/USD pair. Apart from this, traders will further take cues from the flash version of the US Manufacturing and Services PMI, due for release during the early North American session.
Technical levels to watch
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