GBP/USD looks vulnerable above 1.2700 despite Fed-BoE policy divergence narrows

• GBP/USD is expected to deliver weakness below 1.2700 as fears of a bleak global outlook have improved US Dollar’s appeal.
• The Pound Sterling has failed to gain traction despite the BoE hiking interest rates by 50 bps against 25 bps as expected.
• More rate hikes by the BoE are widely anticipated as UK Retail Sales have remained better than anticipated. 

The GBP/USD pair is struggling in maintaining its auction above the round-level support of 1.2700 in the London session. The Cable is expected to deliver a downside break of the aforementioned support despite Federal Reserve (Fed)-Bank of England (BoE) policy divergence has narrowed significantly.

S&P500 futures have extended losses in Europe, portraying a severe decline in the risk appetite of the market participants. The market sentiment has turned negative as investors are worried about global growth due to higher interest rates by central banks.

Meanwhile, sheer strength in the US Dollar Index (DXY) due to the risk-off market mood has dampened sentiment for Cable. The USD Index has printed a fresh day high at 103.00. Going forward, preliminary US S&P data (June) will be in focus. The Manufacturing PMI is expected to show a mild increase to 48.5 vs. the prior release of 48.4. Services PMI is seen declining to 54.0 against the former release of 54.9.

The Pound Sterling has failed to gain traction despite BoE Governor Andrew Bailey hiking interest rates by 50 basis points (bps) against 25 bps as expected as United Kingdom inflation turned out extremely persistent. Core Consumer Price Index (CPI) is moving in the wrong direction as the economic indicator hit a fresh high at 7.1% despite the extremely restricted monetary policy. More rate hikes by the BoE are widely anticipated as UK Retail Sales have remained better than anticipated.  

Monthly economic data has expanded by 0.3% while the street was anticipating a contraction by 0.2%. Annualized Retail Sales contracted by 2.1% but remained better as investors were hoping for a contraction of 2.6%.