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The GBP/USD pair declines by 0.08% as investors flee to shelter in response to poor Chinese GDP statistics; the exchange rate drops below 1.3100. Despite indications of an impending UK recession, expectations of a 50 bps rate increase by the Bank of England in August keep things tense.
Investors assess the implications of possibly high inflation on the trajectory of the GBP/USD currency pair in light of forthcoming UK Consumer Price Index and US Retail Sales reading.
The weaker-than-expected economic rebound in China caused a flight to safe-haven assets, which caused the pair to lose momentum during the North American session and drop below the 1.3100 level. Trading at 1.3080, the GBP/USD is down 0.08%.
China’s second quarter GDP below expectations during the Asian session, creating a negative economic picture. Retail Sales fell significantly from May’s 12.7% to 3.1% in June, despite Industrial Production growing at a solid clip. However, information from the UK would have a significant impact on the couple.
The UK will release the Consumer Price Index (CPI) for June on Wednesday. It is anticipated to decrease to 8.2% YoY from 8.7% in May, while the core CPI is expected to remain at 7.1%. The Bank of England (BoE) was expected to increase interest rates by 50 basis points (bps) in August. According to traders, the bank rate will reach 6.25% in early 2024. However, recent data on the economy suggests that the UK is on the verge of a recession, which would be more severe, due to high inflation and the BoE’s tightening of monetary conditions.
High inflation rates would only be advantageous for GBP/USD longs, pushing the exchange rate above the 2021 annual low and the 1.3200 level. The US Dollar Index (DXY), at the time of writing
In addition, the release of Tuesday’s Retail Sales data, which is predicted to increase by 0.5% over the previous month’s 0.3%, is the major focus for GBP/USD traders right now.
Because consumers continue to have a positive outlook on the economy, the most recent US Consumer Sentiment report sparked curiosity regarding June’s retail sales data. The US Federal Reserve (Fed) will also provide US industrial production, which is forecast to increase by 0% MoM instead of the 0.2% seen in May.
After an overextended rally lasting twelve days, the GBP/USD remains upward biased but is vulnerable to a mean reversion move. The pair gained about 4%, but was unable to surpass the 2021 yearly low of 1.3160. Therefore, GBP/USD sellers intervened, pushing the price below the 1.3100 level, which, if it holds, might indicate that the GBP/USD is destined for additional losses.
The release of significant data from the United Kingdom (UK) would, however, maintain price movement within expected ranges. The GBP/USD is still trading below 1.3100, which might expose the 1.3000 level and then the daily low of 1.2979 on July 13.
