GBP/USD retreats ahead of US inflation, British GDP

With important UK GDP statistics due on Friday, the Pound Sterling experiences little trading and continues to move below the 50-day EMA around 1.2724. The Bank of England’s attitude, meantime, is under pressure as market chances point to a rate hike in September at 85%, with the Bank Rate possibly peaking at 5.75% by December.

Expectations for the July US CPI data are now at 0.2% MoM, with a projected 4.8% annual inflation rate guiding the Fed’s decision-making going forward. While the US Dollar (USD) remains weak overall, the GBP/USD pair gradually declines throughout the North American session, below the 50-day Exponential Moving Average (EMA), as traders get ready for the publication of inflation data in the United States (US). Trading at 1.2724, the GBP/USD is down 0.18%.

The UK’s economic calendar will feature the release its first set of market-moving data on Friday, with the Gross Domestic Product (GDP) for Q2 on its preliminary reading expected to decelerate to 0%, below the prior quarter’s 0.1% growth, on QoQ data, despite the lack of catalyst during the first part of the week.

On an annual basis, Q2 is predicted to stay at 0.2%, while June’s MoM data is predicted to show an improvement over May’s decline. The GBP/USD could continue its downward trend if the UK economy continues to deteriorate since the Bank of England (BoE) may decide against aggressively tightening monetary policy in response to the data.

The odds for a quarter-point BoE increase in September are 85% likely, but the rate for December is fully priced in, indicating that the Bank Rate would peak at 5.75% rather than the 6.5% it was at the start of August.

The US Department of Labour will publish its July inflation data, which is anticipated to demonstrate that the US economy is still experiencing deflation, albeit not as quickly as Fed policymakers had anticipated. The Consumer Price Index is anticipated to rise by 0.2% and 3%, respectively, on a monthly and annual basis. Year-over-year (YoY) data would improve from 3.3% but monthly data would remain unchanged from June’s.

The core CPI, which excludes volatile goods, is anticipated to stay at 0.2%.US central bank officials had begun to split between dovish and hawkish stances. Still, GBP/USD traders must wait for tomorrow’s data, which could shed some light on the US Federal Reserve’s (Fed) forward path on monetary policy.

The likelihood of a rate increase in September is 13.5%, as markets do not anticipate further increases in borrowing costs. However, any rate cut hints would weaken the dollar if Fed officials started to adopt a dovish tone, therefore additional GBP/USD rise is anticipated.

Given the situation, the GBP/USD could stay weak before US data. Following that, a spike may put pressure on the GBP/USD, but UK’s GDP report may shock the market and push the pair higher. Therefore, traders of the GBP/USD pair should exercise further caution.