Pound Sterling trades with caution against US Dollar ahead of US-China trade talks

The Pound Sterling (GBP) trades subduedly around 1.3315 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair consolidates as investors shift to the sidelines ahead of high-stakes trade talks between US Treasury Secretary Scott Bessent and China Vice Premier He Lifeng, which will start on Friday alongside the Association of Southeast Asian Nations (ASEAN) summit in Malaysia.

Top negotiators from the US and China are expected to discuss how to ease trade frictions, which were prompted after China imposed export controls on rare earth minerals. In response, Washington threatened to curb software-powered exports from laptops to jet engines.

In Friday’s session, investors will also focus on the release of the US Consumer Price Index (CPI) data for September, delayed due to the government shutdown, and the preliminary S&P Global PMI data for October, which will be published during the North America session.

The market consensus on US headline inflation is about a rise at a faster pace of 3.1% on an annualized basis against the prior release of 2.9%. The core CPI – which excludes volatile food and energy items – is expected to have risen steadily by 3.1%. On a monthly basis, the headline and the core CPI are estimated to have risen by 0.4% and 0.3%, respectively.

Signs of price pressures rising are unlikely to change dovish expectations of the Federal Reserve (Fed) monetary policy meeting scheduled next week, as policymakers have lately appeared more concerned about growing labor market risks. On the contrary, hot figures would boost them.

Meanwhile, the US S&P Global PMI is expected to have expanded at a moderate pace due to slower growth in the services sector. The Services PMI is seen lower at 53.5 in October, from the previous 54.2.

Pound Sterling rebounds on upbeat UK Retail Sales, flash PMI data

• The Pound Sterling attracts bids against its major currency peers on Friday due to upbeat flash S&P Global Purchasing Managers’ Index (PMI) data for October and surprisingly strong Retail Sales data for September.
• According to the S&P Global report, overall private sector business activity expanded at a stronger-than-expected pace. The Composite PMI rose to 51.1 in October, faster than estimates of 50.6 and the prior reading of 50.1.
• Higher-than-projected growth in the service sector activity and an improvement in the Manufacturing PMI contributed to the upbeat Composite PMI. The Services PMI came in at 51.1, higher than estimates of 51.0 and the former reading of 50.8. Meanwhile, the Manufacturing PMI has increased to 49.6 from expectations of 46.6 and the September reading of 46.2. The manufacturing activity has continued to contract, but at a slower pace. A figure below the 50.0 threshold is considered a contraction in the business activity.
• Earlier in the day, the Office for National Statistics (ONS) reported that Retail Sales, a key measure of consumer spending, unexpectedly rose by 0.5% on a monthly basis, slower than 0.6% in August, which was revised higher from 0.5%. Still, data beat by far economists' expectations of a 0.2% decline.
• On an annualized basis, the consumer spending measure grew at a robust pace of 1.5% against the market consensus of 0.6% and the prior reading of 0.7%.
• Signs of upbeat Retail Sales figures and strong PMIs are likely to offer some relief to Bank of England (BoE) officials who became concerned over the UK economic outlook. On Thursday, BoE policymaker Swati Dhingra warned, in her prepared remarks at a conference organized by Ireland’s central bank, that United States (US) tariffs could put downward pressure on inflation and economic growth. “Tariffs mean lower overall growth, and some downward pressure on prices in the medium term,” Dhingra said.

Technical Analysis: Pound Sterling trades below 20-day EMA

The Pound Sterling ticks down to near 1.3315 against the US Dollar on Friday’s European session. The near-term trend of the GBP/USD pair remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which is around 1.3395.

The 14-day Relative Strength Index (RSI) wobbles near 40.00. A fresh bearish momentum would emerge if the RSI drops below that level.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the psychological level of 1.3500 will act as a key barrier.