GBP/USD tumbles below 1.3100, as Chinese economic jitters stir safe-haven appeal

• GBP/USD suffers 0.08% drop as disappointing Chinese GDP data sparks flight to safety; exchange rate slips under 1.3100.
• Expectations of a 50 bps rate hike by the Bank of England in August maintain tension despite signs of looming UK recession.
• Upcoming UK Consumer Price Index and US Retail Sales figures heighten focus; investors gauge the impact of potential high inflation on GBP/USD trajectory.

GBP/USD lost traction during the North American session, falling below the 1.3100 figure due to an adverse market mood spurred by a weaker-than-expected economic recovery in China, which triggered a flight to safe-haven assets. The GBP/USD is trading at 1.3080, down 0.08%.

Imminent UK inflation data to keep GBP/USD within familiar levels

During the Asian session, China’s Gross Domestic Product (GDP) for the second quarter missed estimates portraying a gloomy economic outlook. Although Industrial Production expanded at a healthy rate, Retail Sales slowed sharply, from May’s 12.7% to 3.1% in June. However, data coming from the UK would greatly influence the pair.

On Wednesday, the UK will reveal the Consumer Price Index (CPI) for June, estimated at 8.2% YoY, from 8.7% in May, while the core CPI is awaited at 7.1%, unchanged from May. Expectations that the Bank of England (BoE) would raise rates by 50 bps in August remained high, with traders seeing the BoE lifting the Bank Rates to 6.25% in early 2024. Nevertheless, recent economic data indicates that the UK’s economy is at the brisk of a recession, which would be more profound, amidst high inflation levels and the BoE tightening monetary conditions.

High inflation numbers would only benefit GBP/USD longs, which could lift the exchange rate past the 2021 yearly low and the 1.3200 figure. As of writing, the US Dollar Index (DXY), a measure of the buck’s value vs. its peers, eases below the 100.000 mark, down by 0.09%, at 99.875.

Aside from this, GBP/USD traders remain laser-focused on the release of Retail Sales on Tuesday, expected to rise by 0.5%, above the prior month’s 0.3%. The latest US Consumer Sentiment report spurred speculations about June’s retail sales report, as consumers remain positive about the economy. Also, the US Federal Reserve (Fed) will unveil US Industrial production, estimated at 0% MoM, below May 0.2% expansion.

GBP/USD Price Analysis: Technical outlook

The GBP/USD remains upward biased but subject to a mean reversion move, after an overextended rally of twelve days, with the pair gaining almost 4%, though failing to crack the 2021 yearly low of 1.3160. Hence, GBP/USD sellers stepped in, dragging the price below the 1.3100 mark, which, if it holds, the GBP/USD could be headed for further losses. However, the release of important data from the United Kingdom (UK) would keep price action within familiar levels. On the downside, the GBP/USD remains below 1.3100 which could expose the 1.3000 mark, followed by the July 13 daily low of 1.2979.