GBP/USD drops towards yearly low near 1.1400 on downbeat UK Retail Sales

• GBP/USD takes offers to refresh intraday low after UK’s Retail Sales for August dropped below market forecasts and prior.
• Risk-aversion and firmer Yields also weigh on Cable prices.
• UK’s record inflation expectations, hawkish Fed bets test bears amid fears of “Black Wednesday”.
• Preliminary Michigan CSI for September should entertain traders before Fed meeting.

GBP/USD refreshes intraday low around 1.1440 after the UK’s Retail Sales dropped more than expected in August, as per the latest published during early Friday. Adding strength to the bearish bias are the hawkish Fed bets and the rebound in the US Treasury yields.

UK’s Retail Sales for August marked 5.4% YoY contraction versus -4.2% expected and -3.4% prior. Details suggest that the Retail Sales ex-Fuel printed -5.0% the figure compared to -3.4% market consensus and -3.1% (revised down) previous readings.

In addition to the downbeat UK data that contribute a lion’s share to the Gross Domestic Product (GDP), hawkish Fed bets and recovery in the US Treasury yields also weigh on the GBP/USD prices.

That said, the latest readings of the hawkish Fed bets from the CME’s FedWatch Tool suggest the market priced in the Fed’s 0.75% and 1.0% rate hikes during the next week’s Fed meeting with 76% and 24% chances.

Elsewhere, the US 10-year Treasury yields reverse the early Asian session decline to regain 3.46% mark by the press time, after rising 1.38% the previous day. With this, the negative divergence with the two-year bond yields keeps signaling recession fears and weighing on the GBP/USD prices. That said, the two-year US Treasury bond yields rise to the fresh high since late 2007, to 3.892% by the press time.

It should be noted that Bloomberg’s piece suggesting the fears of September 16, 1992, known as “Black Wednesday”, seems to also drown the GBP/USD prices.

Alternatively, record high inflation expectations in the UK, as well as the increasing confidence in the BOE, challenged the GBP/USD bears previously.

Having witnessed the initial reaction to the UK data, GBP/USD traders may wait for the preliminary readings of the Michigan Consumer Sentiment Index (CSI), expected 60 versus 58.2 prior. However, major attention will be given to the next week’s Federal Open Market Committee (FOMC) monetary policy meeting.

Technical analysis

A four-month-old downward sloping support line, near 1.1330, remains on the bear’s radar unless the GBP/USD prices cross the 21-DMA hurdle, around 1.1650 at the latest.