GBP/USD slides to 1.2650 as US Dollar recovers on July Fed rate hike concerns, US data eyed

• GBP/USD fades bounce off intraday low during the first loss-making day in three.
• Hawkish Fed halt joins mixed UK data, post-FOMC consolidation to tease Cable bears.
• US Retail Sales, chatters about Fed vs. BoE divergence appear the key for fresh impulse.

GBP/USD remains depressed around 1.2650 as it prints the first daily loss in three heading into Thursday’s London open. In doing so, the Cable pair retreated from the highest levels since late April 2022.

The upbeat performance of the US Treasury bond yields joins recently increasing market chatters about the Federal Reserve’s (Fed) July rate hike to underpin the Pound Sterling’s latest pullback. Also weighing on the Cable prices could be the previous day’s mixed data.

That said, UK’s Gross Domestic Product (GDP) for April matches 0.2% growth versus -0.3% prior while the Industrial Production slumps during the stated month. That said, the Industrial Production also disappoints and so do the Index of Services for three months to April. Additionally, the UK’s NIESR GDP for three months to May eased to 0.0% versus 0.1% anticipated and prior.

On the other hand, the US Federal Open Market Committee (FOMC) kept the benchmark interest rate unchanged at 5.0-5.25%, matching market expectations of pausing the multi-month-old hawkish cycle after 10 consecutive rate lifts. However, the upbeat FOMC Economic Projections and Federal Reserve (Fed) Chairman Jerome Powell’s speech renewed the hawkish Fed bias and might have helped the US Treasury bond yields, as well as the US Dollar, to rebound of late.

That said, the Fed dot plot rose 30 bps from March for 2024 and 2025 to 4.6% and 3.4% respectively while the median rate forecasts suggest two more rate increases in 2023. Further, no rate cuts nor recession is expected in the current year whereas the median estimation for the US Gross Domestic Product (GDP) rose to 1.0% from 0.4% in March. Additionally, Powell’s speech unveils a “meeting by meeting” approach for decision-making but signals July as a ‘live’ meeting, suggesting a 0.25% rate hike.

Elsewhere, softer China data and fears of slower global economic recovery due to the hawkish mood of the Fed, despite the latest pause, seem to weigh on the S&P500 Futures and propel US Treasury bond yields, as well as the USD.

Looking ahead, US Retail Sales for May and other mid-tier activity data, as well as the weekly Jobless Claims, will be important for the USD/INR pair traders as the Fed has already highlighted the importance of each incoming data for decision-making.

Technical analysis

The overbought RSI (14) triggers GBP/USD retreat towards a one-week-old rising support line, around 1.2560 by the press time. On the contrary, the Pound Sterling’s recovery remains elusive unless it crosses an upward-sloping resistance line from August 2022, close to 1.2725 at the latest.