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The GBP/USD pair dropped in early trading due to strong US dollar strength, driven by upbeat UK retail sales data. The recent UK inflation report repricing of the Bank of England’s interest rate expectations led to a 50% chance of a 50 bps rate hike projected by the swaps market.
The US data, particularly lower-than-expected unemployment claims, refueled concerns about the Fed tightening monetary conditions post the upcoming meeting.
The Asian session triggered flows toward the US Dollar, as a Reuters report revealed the Bank of Japan would stick to its YCC program and maintain its dovish stance. This tumbled the GBP/USD, which had risen towards the 1.2900 mark after upbeat retail sales data in the UK.
Expectations of the Fed raising rates past the July meeting surged to 28%, resulting in a 1% weekly gain. The US Dollar Index (DXY) is currently at 101.052, which advances 0.23% on Friday.
The GBP/USD could remain sideways ahead of the FOMC’s monetary policy meeting, but if Fed Chair Powell strikes a hawkish tone at his press conference, that could weigh on the GBP/USD before the BoE’s August 3 meeting.
