GBP/USD sticks to gains post-US Retail Sales, remains below 1.2100 as Fed rate hike looms

• GBP/USD gain traction on Wednesday and staged a goodish bounce from over a two-year low.
• Retreating US bond yields prompted some USD profit-taking and extended support to the pair.
• Weaker US Retail Sales data failed to impress the USD bulls as the focus remains on FOMC.

The GBP/USD pair gained some positive traction on Wednesday and snapped a five-day losing streak to the lowest level since March 2020, around the 1.1935 region touched the previous day. The pair held on to intraday recovery gains through the early North American session, albeit lacked follow-through and remained below the 1.2100 mark post-US macro data.

A sharp pullback in the US Treasury bond yields prompted the US dollar bulls to take some profits off the table, especially after the recent runup to a two-decade high. The USD maintained its softer tone and failed to gain any respite from the disappointing release of the US Retail Sales figures. In fact, the headline sales fell 0.3% MoM in May as against consensus estimates pointing to a deceleration in growth to 0.2% from the 0.7% rise in the previous month.

Excluding autos, core retail sales also fell short of market expectations and climbed 0.5% during the reported month, though was slightly better than the 0.4% increase in April. The data did little to ease concerns about softening US economic growth or impress the USD bulls. That said, expectations for a more aggressive policy tightening by the Fed helped limit any deeper USD losses and kept a lid on any meaningful upside for the GBP/USD pair, at least for now.

Investors seem convinced that the Fed would hike interest rates at a faster pace to curb soaring inflation. Fed funds futures indicate rising odds for a jumbo 75 bps rate hike over the next two meetings. Hence, the market focus will remain glued to the outcome of a two-day FOMC policy meeting. The decision is scheduled to be announced later during the US session, which will influence the USD and produce short-term trading opportunities around the GBP/USD pair.

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