GBP/USD sticks to neutral bias, around 1.3800 despite weaker UK Retail Sales

• GBP/USD edged lower on Friday following the disappointing release of UK Retail Sales figures.
• A subdued USD price action, BoE rate hike expectations helped limit any meaningful downfall.
• The lack of any follow-through selling warrants some caution before placing fresh bearish bets.

The GBP/USD pair refreshed daily lows in reaction to dismal UK macro data, albeit lacked any follow-through selling and was last seen trading just below the 1.3800 mark.

The pair struggled to capitalize on its modest Asian session uptick to the 1.3810 area and edged lower following the release of weaker UK monthly Retail Sales figures. The UK Office for National Statistics reported on Friday that the headline sales unexpected dropped by 0.2% in September. Excluding the auto motor fuel sales, the core retail sales declined by -0.6% MoM as against consensus estimates pointing to a modest rise of 0.2% from the 0.7% decline recorded in August.

The data added to signs of weakness in the economic recovery and comes on the back of this week's softer UK consumer inflation figures. The incoming data might have dampened prospects for an imminent rate hike move by the Bank of England in November and acted as a headwind for the British pound. However, expectations that the BoE will eventually hike rates before the end of this year, along with a subdued US dollar demand helped limit any meaningful slide for the GBP/USD pair.

The USD, so far, has struggled to capitalize on the previous day's goodish rebound from three-week lows, though elevated US Treasury bond yields continued lending some support. It is worth recalling that the yield on the benchmark 10-year US government bond rose to the highest level since May 13, around 1.683% on Thursday amid expectations for an early policy tightening by the Fed. The market speculations were reinforced by the overnight comments from influential FOMC members.

Fed Governor Christopher Waller noted that the US central bank may have to act faster if inflation remains too high. Adding to this, Atlanta Fed President Raphael Bostic said that he has pencilled in a rate increase in the late third, or maybe an early fourth quarter of 2022. The fundamental backdrop favours USD bulls and supports prospects for an extension of the GBP/USD pair's overnight slide from five-week tops. That said, the lack of follow-through selling warrants caution for bearish traders.

Market participants now look forward to the US economic docket, highlighting the release of flash Manufacturing and Services PMI prints later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for some short-term opportunities around the GBP/USD pair.

Technical levels to watch