GBP/USD Weakens as US Data Fuel Interest Rate Worries

The GBP/USD slipped around 1.2745, losing 0.06% on the day. US Retail Sales rose 0.6% month-over-month in February from -1.1% in January, worse than expected.

BoE’s Bailey said central bankers turned to the question of how long they needed to keep rates high as inflation eased. Investors will focus on US Industrial Production and the preliminary Michigan Consumer Sentiment on Friday.

The pair extends its downside around the mid-1.2700s during the early Asian trading hours on Friday. The major pair slips to multi-day lows near 1.2740 near 1.2740 amid the rebound in the Greenback after strong US economic data. Later in the day, traders will monitor the preliminary US Michigan Consumer Sentiment for March, which is expected to remain steady at 76.9.

Data released from the US Census Bureau on Thursday revealed that US Retail Sales jumped 0.6% MoM in February from a downwardly revised -1.1% in the previous month, below the market consensus of a 0.8% m/m rise. The Retail Sales Control Group was flat at 0% MoM from the previous reading of a 0.3% MoM decline. Additionally, the PPI figure rose 0.6% MoM in February from 0.3% MoM in January, while the Core PPI figure climbed 0.3% MoM from a 0.5% gain in January.
U.S. Interest Rate Hike in Focus

Stronger US producer price data (PPI) has raised concerns that the Federal Reserve (Fed) may hold interest rates at their current 23-year high for a longer period. While Fed Chair Jerome Powell hasn’t ruled out rate cuts, policymakers are waiting for further signs of easing inflation before making a decision. This hawkish stance by the Fed is strengthening the US Dollar (USD) and putting downward pressure on the GBP/USD exchange rate. Investors are closely watching the upcoming FOMC meeting, where rates are expected to remain unchanged for the fifth time in a row.

BoE Waits for Confirmation on Rate Cuts

Positive news for the British Pound: the UK emerged from recession with 0.2% month-over-month GDP growth in January. This has led markets to push back expectations for a Bank of England (BoE) rate cut from June to August. Echoing this cautious approach, BoE Governor Andrew Bailey highlighted the need for continued high interest rates to combat inflation, despite signs that their restrictive policies are having an effect.

Looking Ahead: Key Data for FOMC Meeting

Traders are turning their attention to upcoming economic data releases, including US Industrial Production and the preliminary Michigan Consumer Sentiment index, scheduled for Friday. This information will be crucial for investors as they prepare for next week’s FOMC meeting, where the Fed’s monetary policy decisions will be announced.