GBP/USD stays defensive near 1.2500 amid US default woes, mixed UK inflation signals

• GBP/USD pares the previous day’s losses, the first in four, with mild gains.
• UK retailers post biggest increase in Food prices since 2005, sees easing inflation ahead.
• US Dollar retreats as debt ceiling concerns join pre-data anxiety amid full markets.
• UK Manufacturing PMI, US Factory Orders can direct intraday moves.

GBP/USD licks its wounds around 1.2500 after posting the biggest daily loss in a week, as well as snapping a three-day uptrend the previous day. In doing so, the Cable pair takes clues from the US Dollar’s retreat while cheering mostly upbeat inflation signals from the UK. However, comparatively more hawkish concerns surrounding the Fed, than the Bank of England (BoE), keep the Cable pair sellers hopeful as it lacks upside momentum near the highest levels in 11 months marked the previous day.

Food prices at British supermarkets rose 15.7% in the year to April, the biggest annual increase in records going back to 2005, but lower prices are on the horizon, the British Retail Consortium (BRC) said on Tuesday per Reuters.

On the other hand, the US Dollar Index (DXY) prints the first daily loss in four around 102.00 as US default fears loom after the Treasury Department bought forward the date of running out of funds to match obligations if the current debt ceiling isn’t altered, to June 01 from previously signaled July. It’s worth noting that a relief from the US First Republic Bank drama, after the US regulators seized assets of a troubled bank and sold them to a new buyer, namely JP Morgan, also weigh on the US Dollar and allow the GBP/USD buyers to return.

It should be noted, however, that the recently upbeat US inflation clues and easing hopes of Fed policy pivot in 2023 seem to keep the US Dollar buyers hopeful. Furthermore, fears surrounding the US-China tension and comparatively stronger US jobs report add strength to the bearish bias about the Cable pair.

Amid these plays, S&P 500 Futures track Wall Street’s indecisiveness near 4,180, retreating from a three-month high, whereas the US 10-year and two-year Treasury bond yields ease from a one-week high to 3.55% and 4.13% at the latest.

Moving on, GBP/USD pair traders should pay attention to the final readings of the UK S&P Global Manufacturing PMI for April, as well as the US Factory Orders for March, for intraday directions. However, major attention will be given to this week’s Federal Reserve (Fed) monetary policy meeting and the US jobs report for April.

Technical analysis

Although the 10-DMA level of around 1.2475 puts a floor under the GBP/USD prices for short-term the Cable pair’s rebound remains elusive unless crossing a one-month-old ascending resistance line, close to 1.2575 at the latest.