GBP/USD holds above the 1.2600 mark, UK Retail Sales, US PPI data eyed

• GBP/USD recovers above the 1.2600 psychological mark on Friday amid the USD weakness. 
• US Retail Sales came in weaker than expected, dropping 0.8% MoM in January from a 0.4% rise in December.
• The UK economy entered a technical recession following two consecutive quarters of negative GDP growth.

The GBP/USD pair manages to hold above the key 100-day Exponential Moving Average (EMA) of 1.2580 during the early Asian session on Friday. The recovery of the major pair is bolstered by weaker-than-expected US Retail Sales, which drag the USD Index (DXY) lower. Investors will shift their attention to the UK Retail Sales and US Producer Price Index (PPI), due later in the day. At press time, GBP/USD is trading at 1.2600, adding 0.04% on the day. 

On Thursday, US Retail Sales dropped 0.8% MoM in January from a 0.4% rise in December, worse than the market expectation of a 0.1% decline. Retail Sales Control Group came in at -0.4% MoM versus 0.6% prior. The downbeat Retail Sales data raise hope that the Federal Reserve (Fed) will soon start cutting interest rates in the coming months. This, in turn, exerts some selling pressure on the Greenback and acts as a tailwind for the GBP/USD pair. Furthermore, the New York Empire State Manufacturing Index arrived at -2.4 in February, a big improvement from the previous reading of -43.7. 

On the British Pound front, the UK economy entered a technical recession following two consecutive quarters of negative GDP growth. The quarterly Gross Domestic Product (GDP) for the fourth quarter (Q4) of 2023 was -0.3% from the previous quarter of 0.1% contraction. The year-on-year GDP growth number for Q4 2023 was -0.2% from the previous reading of 0.2% expansion and below market expectations of 0.1%, according to the Office for National Statistics. 

The report triggered speculation about whether the Bank of England (BoE) may consider cutting interest rates sooner than this summer. The BoE policymaker Catharine L. Mann said on Thursday that the recent GDP data indicates that the second half of 2023 had a soft patch. Mann further stated that the central bank needs at least one more set of inflation data before deciding its next moves.

Looking ahead, the UK January Retail Sales and US Producer Price Index (PPI) will be due. Fed's Barr and Daly along with BoE's Pill are set to speak later on Friday. Traders will take cues from these events and find trading opportunities around the GBP/USD pair.