GBP/USD sticks to modest gains below 1.2500 mark, upside potential seems limited

The GBP/USD pair traded with a mild positive bias through the first half of the European session and was last seen hovering around the 1.2475-1.2480 region, up 0.15% for the day.

Following the previous day's modest pullback from a two-week high, the GBP/USD pair attracted some buying on Friday and was supported by better-than-expected UK macro data. The UK Office for National Statistics reported that Retail Sales unexpectedly rose by 1.4% in April as against consensus estimates pointing to a drop of 0.2%.

Adding to this, the Bank of England (BoE) Chief Economist Huw Pill said that they still have some way to go in policy tightening as MPC sees an upside skew in the risks around the inflation. That said, a combination of factors held back bulls from placing aggressive bets and kept a lid on any further gains for the GBP/USD pair.

Against the backdrop of a surprise economic contraction in March, the UK inflation data released on Wednesday fueled stagflation fears. Moreover, rising wages threaten to exacerbate inflationary pressures and hurt consumer spending. This, along with the BoE's gloomy economic outlook and Brexit jitters, should act as a headwind for sterling.

On the other hand, the recent US dollar pullback from a two-decade high, for now, seems to have stalled amid expectations for a more aggressive policy tightening by the Fed. This further contributed to keeping a lid on any meaningful upside for the GBP/USD pair. That said, the risk-on impulse undermined the safe-haven USD and extended support to spot prices.

There isn't any major market-moving economic data due for release on Friday, either from the UK or the US. That said, the US bond yields and the broader market risk sentiment might influence the USD price dynamics. This, in turn, should provide some impetus to the GBP/USD pair and allow traders to grab short-term opportunities on the last day of the week.

Technical levels to watch