GBP/USD slides below 1.2900 with eyes on UK GDP, US Michigan Consumer Sentiment Index

• GBP/USD extends the previous day’s losses towards refreshing daily low, mildly offered of late.
• Hawkish Fedspeak contradicts recently softer US inflation data and helps US dollar to lick its wounds after five-day downtrend.
• Jitters surrounding UK politics, Brexit join BOE’s gloomy outlook to keep buyers at bay.
• The preliminary reading of the UK’s Q2 GDP is likely to propel recession woes and weigh on the cable prices.

GBP/USD takes offers to refresh intraday low around 1.2180, down for the second consecutive day, as the US dollar pares weekly losses during Friday’s Asian session. In addition to the greenback’s consolidation of recent downside around the monthly low, the Cable pair trader’s cautious mood ahead of the initial estimations of the UK’s second quarter (Q2) Gross Domestic Product (GDP) also weigh on the quote.

Also read: UK GDP Preview: Early confirmation of BOE’s recession forecast

The pre-data anxiety appears strong enough to recall the GBP/USD bears even as the US Dollar Index (DXY) dropped for the fifth consecutive day on Thursday. The reason could be linked to the political and Brexit-linked pessimism surrounding Britain.

On Thursday, the UK government held talks with the energy bosses about high bills but Prime Minister Boris Johnson said, per Sky News, that it is for his successor in Number 10 to "make significant fiscal decisions". Elsewhere, a Conservative commentator has claimed per the UK Express that the US has taken favor with Brexit Britain due to its lack of ties to the European Union (EU).

On the other hand, US Producer Price Index (PPI) for July tracked the headline Consumer Price Index (CPI) while easing to 9.8% YoY versus 11.3% prior and 10.4% market forecasts. That said, the monthly PPI dropped to the lowest levels since May 2020, to -0.5% compared to 1.0% expected and 0.2% prior, which in turn signaled more easing of inflation fears.

Furthermore, the softer prints of the US Weekly Jobless Claims also portrayed improvement in the US employment scenario, tracking the recent job numbers from the world’s largest economy, which in turn helped to build the risk-on mood but could not favor GBP/USD. That said, US Initial Jobless Claims eased to 262K for the week ending August 6 versus 263K expected and downwardly revised 248K prior.

Recently, President and Chief Executive Officer of the Federal Reserve Bank of San Francisco Mary Daly mentioned that she is open to a 75bps rate hike in September. Previously, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evens stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

Amid these plays, Wall Street began the day on a positive side before closing mixed while the US 10-year Treasury yields rallied 10 basis points (bps) to 2.88% at the latest. It’s worth noting that the S&P 500 Futures print mild gains around 4,215 and the US Treasury yields remain firmer by the press time.

To sum up, GBP/USD bears are set for further dominance ahead of the key UK GDP release, expected -0.2% QoQ versus 0.8% prior, mainly due to the Bank of England’s (BOE) fears of economic transition. However, as the markets are all negative, any positive surprise won’t be taken lightly considering the US dollar’s recent weakness and easing inflation fears.

Following the UK data, the first impressions of the US Michigan Consumer Sentiment Index (CSI) for August, expected at 52.5 versus 51.5 prior, will be important to watch for clear directions.

Also read: Michigan Consumer Sentiment Index Preview: Good news for the dollar but not for households

Technical analysis

GBP/USD extends pullback from a1 11-week-old downward sloping resistance line, at 1.2245 by the press time, towards revisiting the 21-DMA support near 1.2090. However, the cable pair’s further weakness hinges on the clear downside break of the previous resistance line from mid-June, around 1.1940 at the latest.