GBP/USD struggles around 1.3600 on BOE, Brexit concerns ahead of UK Retail Sales

• GBP/USD holds lower ground near weekly bottom, recently inactive.
• EU sees no fundamental change in UK’s Brexit stance, warns of end to opportunity window next month.
• UK PM removes “Plan B” measures but fails to overcome political angst, BOE may announce another rate hike in February.
• Market sentiment dwindles amid pre-Fed concerns, UK Retail Sales may bolster hawkish BOE bets.

GBP/USD differs from other risk-sensitive currency pairs to remain inactive around 1.3590-95 during early Friday. In doing so, the cable pair struggles to justify the risk-off mood amid contrasting signals concerning Brexit and the Bank of England’s (BOE) next move ahead of the key UK Retail Sales for December.

Following the first Brexit meeting with the UK’s representative Liz Truss, the European Union (EU) policymakers reiterated their disappointment with ex-neighbor. “The European Union’s Brexit negotiator told lawmakers behind closed doors that a window of opportunity to strike a deal with the U.K. will close late next month, also cautioning that he has yet to see a fundamental change in London’s stance despite a positive shift in tone,” said Bloomberg. Elsewhere, the UK-India trade deal also lingers amid multiple issues ranging from alcohol to dairy.

Alternatively, strong UK inflation renews hopes of another BOE rate hike in February, which in turn keeps GBP/USD buyers hopeful. The Bank of England will press ahead with its tightening cycle next month as red-hot inflation runs well ahead of target and the economic threat from the Omicron coronavirus variant should prove milder than previous mutations,” per the latest Reuters poll.

It should be noted that the reduction in the virus-led activity restrictions and recently easing covid cases also help GBP/USD to battle the risk-off mood taking clues from the Fed rate hike expectations. The hawkish Fed bets grew after US Treasury Secretary Janet Yellen said during a CNBC interview, “Inflation rose by more than most economists, including me, expected and of course, it's our responsibility with the Fed to address that. And we will.”

Elsewhere, UK PM Boris Johnson remains pressured to leave the PM post due to a controversial booze party during the covid times. Even so, some among the supporters claim that Johnson’s exit will reverse Brexit, which in turn helps the Tory Leader Boris to stay a bit relaxed.

Against this backdrop, the US 10-year Treasury yields posted a second consecutive daily loss, down six basis points to 1.77% at the latest, whereas the S&P 500 Future dropped 0.60% intraday by the press time.

Looking forward, UK Retail Sales for December, expected -0.6% MoM versus +1.4% prior, will be crucial for the GBP/USD prices as BOE bulls are flexing muscles after upbeat UK jobs and inflation figures. “We expect a sharp decline in December retail sales of 1.5% m/m (market forecast: -0.6%) with card spending data suggesting it might be even worse,” said TD Securities in this regard.

Technical analysis

Unless providing a daily closing below the 100-DMA level of 1.3540, GBP/USD sellers remain cautious.