GBP/USD retreats towards 1.2250 as Conservatives fail in UK by-elections, Retail Sales eyed

• GBP/USD pulls back from intraday high during the first positive day in three.
• Conservatives lost two Parliamentary seats in the UK by-elections, challenges to PM Johnson mounts.
• Downbeat UK data and disappointment from BOE keep cable bears hopeful.
• British Retail Sales for May will be important considering its lion share in GDP.

GBP/USD justifies UK’s political pessimism to take a U-turn from the intraday high, near 1.2270 during early Friday morning in Europe. Even so, a softer US dollar and anxiety ahead of the UK’s Retail Sales for May, up for publishing at 06:30 GMT, challenge the Cable pair sellers.

UK PM Boris Johnson witnesses defeat in previously safe seats for the Conservatives during the by-elections. Among them, Liberal Democrats Party won the Tiverton and Honiton seats while Labour Party won in Wakefield. It’s worth noting that UK PM Johnson lost confidence after the partygate scandal and hence raised worries about the further GBP/USD weakness.

Elsewhere, downbeat prints of the UK PMIs for June and early signals for Retail Sales weighed on the GBP/USD pair the previous day. UK’s S&P Global/CIPS Manufacturing Purchasing Managers’ Index (PMI) dropped to 53.4 in June, versus 53.7 expected and May’s final reading of 54.6. The Services PMI reprints the previous month’s final reading of 53.4 while staying below 53.0 forecasts.

Further, the Confederation of British Industry's (CBI) latest Distributive Trades Survey showed on Thursday that the UK’s Retail Sales Balance dropped to -5 in June versus -1 prior. Additionally, the three-month average dropped to the lowest level in a year with -14 versus -9 previous readings.

On the other hand, the US Dollar Index (DXY) snapped the three-day downtrend the previous day, down 0.11% intraday near 104.30 by the press time, as Fed Chair Jerome Powell’s concern for recession joined downbeat US PMI data to favor the greenback buyers the previous day. However, the mentioning of inflation and recession woes as the challenges to ensure a smooth landing, despite expecting firmer growth this year, weigh on the DXY.

Amid these plays, the Wall Street benchmarks closed positively due to the downbeat Treasury yields. However, the S&P 500 Futures rise 0.30% while the US 10-year Treasury yields remain firmer around 3.09%, after dropping to a fortnight low the previous day.

Moving on, UK Retail Sales contribute nearly 60% to the British GDP and hence become important for the GBP/USD pair traders. The key data is expected to improve on YoY but may disappoint on MoM. It should be observed that the Bank of England’s (BOE) refrain from announcing faster rate hikes than already planned could weigh on the quote even if the data manage to offer a positive surprise.

Technical analysis

GBP/USD fades bounce off a six-week-old horizontal support area, around 1.2170-60. On the contrary, buyers need validation from 1.2285 to trigger the upside momentum. Even so, the 100-SMA could test the bulls around 1.2345.