GBP/USD retreats towards 1.1500 as UK politics, Brexit test buyers, focus on US Retail Sales

GBP/USD remains pressured towards 1.1500 during early Thursday morning in Europe, reversing the previous day’s rebound, as global markets remain dicey ahead of the US data. Also exerting downside pressure on the Cable pair could be the pessimism surrounding the British politics and Brexit updates, not to forget the previous day’s downbeat UK/US inflation data.

UK Prime Minister (PM) Liz Truss has difficulty convincing British locals that the government’s relief on energy bills will take effect from the start of October. The doubts over UK PM Truss’ ability to convince Northern Ireland Premier Micheal Martin during his visit to London, for Queen’s funeral, also weigh on the GBP/USD prices. Furthermore, a lack of response from London to the European Union (EU) despite approaching the date to trigger Article 16 relating to Brexit exerts additional downside pressure on the quote.

On Wednesday, the UK’s Food price inflation increased for the 13th consecutive month to 1.5% MoM, the biggest monthly jump since 1995. However, the headline Consumer Price Index (CPI) declined to 9.9% YoY versus 10.2% market forecasts and 10.1% previous readings. Further, the Retail Price Index also eased, reprinting 12.3% YoY figures versus 12.4% expected.

In the case of the US, the Producer Price Index (PPI) declined to 8.7% YoY in August from 9.8% in July, versus 8.8% in market forecasts. Details suggest that the PPI ex Food & Energy, better known as Core PPI, also eased to 7.3% YoY from 7.6% but surpassed the market expectation of 7.1%. Even so, the 75% chance of the Fed’s 75 basis points (bps) rate hike in the next week, as well as the 25% odds favoring the full 100 bps Fed rate lift, as per the CME’s FedWatch Tool, favor the GBP/USD bears.

It should be noted that US President Joe Biden’s rejection of US fears and China’s stimulus are some key developments that should have favored the risk appetite. However, the Sino-American tussles and the European energy crisis seemed to have challenged the optimism. Additionally, the looming labor strike in the US appears to be an extra burden on the risk appetite.

Ami these plays, the S&P 500 Futures print mild gains around 3,670 whereas the US 10-year Treasury yields remain directionless near 3.416%.

Looking forward, the US Retail Sales for August, expected to remain unchanged at 0.0%, will be important for the GBP/USD traders to watch for intraday directions amid a lack of data/events from the UK. However, major attention will be given to the next week’s Fed meeting. Overall, the bears are likely to keep reins.

Also read: US Retail Sales Preview: Can consumers keep up with inflation? A breather could weigh on the dollar

Technical analysis

Despite the Cable pair’s repeated bounce off the 1.1490-85 support area, the buyers remain alert unless the quote crosses the 21-DMA hurdle surrounding 1.1650.