GBP/USD retreats after hitting a two-month high, trades near 1.2530

GBP/USD hovers around 1.2530 during the Asian session on Friday after pulling back from a two-month high hit at 1.2569 on Thursday. The GBP/USD pair experienced a boost from upward PMI data from the United Kingdom (UK) released on Thursday. Additionally, the Pound Sterling (GBP) found relief and made gains against the US Dollar (USD) in thin trading, benefiting from the closure of US markets during Thanksgiving.

The UK business activity is showing signs of a turnaround, with the preliminary S&P Global/CIPS Services and Composite PMIs expanding in November after three consecutive months of contraction. The Services PMI and Composite PMI returned to expansionary territory at 50.5 and 50.1, respectively, defying expectations of stagnation at 49.5 and 48.7.

Furthermore, Manufacturing PMI also improved to 46.7 from 44.8 prior. On Friday, GfK Consumer Confidence for November declined by 24.0 against the reading of 28.0 decline as expected.

However, despite this positive development, the overall economic outlook for the UK remains weak, projecting a recession. Bank of England (BoE) Governor Andrew Bailey's recent hawkish comments, emphasizing the need for higher rates for an extended period, could pose challenges for the economy.

On the bright side, the improvement in business activity is attributed to a drop in headline inflation, as indicated by S&P Economic Director Tim Moore. The latest UK inflation report witnessed a decline in CPI from 6.7% to 4.6%, and although the economy managed to avoid a recession, with GDP holding at 0%, challenges persist.

The US Dollar Index (DXY) recovers the recent losses on the improvement in US Treasury yields, trading higher around 103.80. The yields on US 10-year and 2-year bond coupon surge at 4.46% and 4.94%, respectively, at the time of writing.

The increasing probability of no additional interest rate hikes by the Federal Reserve (Fed) is fostering a risk-on sentiment, potentially eroding the strength of the Greenback as market sentiments adapt to the evolving expectations surrounding Fed policy.

Looking ahead on the economic calendar, Friday's release of the US S&P Global PMI data is anticipated. A slight decline is expected in the Services sector from 50.6 to 50.4 and in the Manufacturing sector from 50.0 to 49.8. These figures will be closely monitored for insights into the performance of key sectors in the US economy.