GBP/USD holds steady near 1.2200 despite weaker UK Retail Sales, upside seems limited

• GBP/USD gains some positive traction on Friday amid a modest USD downtick.
• The disappointing release of the UK Retail Sales fails to provide any impetus.
• A bleak outlook for the UK economy, BoE’s dovish hike favours the GBP bears.
• The Fed’s hawkish outlook, recession fears support prospects for further losses.

The GBP/USD pair attracts some buying on Friday and recovers a part of the previous day's heavy losses to a one-week low. The pair sticks to its modest intraday gains above the 1.2200 mark through the early European session and moves little following the release of the UK macro data.

The UK Office for National Statistics reported that Retail Sales dropped by 0.4% in November against the anticipated growth of 0.3% and the 0.9% increase recorded in the previous month. Furthermore, sales excluding the auto motor fuel unexpectedly fell by 0.3% MoM as compared to the 0.7% rise in October. The data validates a bleak outlook for the UK economy, which, along with a dovish 50 bps rate hike by the Bank of England on Wednesday, supports prospects for some meaningful downside for the GBP/USD pair.

That said, signs of stability in the equity markets prompt some selling around the safe-haven US Dollar and lend support to spot prices, at least for the time being. Meanwhile, the Fed struck a more hawkish tone on Wednesday and signalled that it will continue to raise rates to crush inflation. This, along with looming recession risks, favours the USD bulls and adds credence to the negative outlook for the GBP/USD pair. Hence, any further move up could be seen as a selling opportunity and remain capped.

Friday's economic docket also features the release of the flash PMI prints from the UK and the US. This, along with the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the GBP/USD pair. Nevertheless, spot prices remain on track to register modest losses for the first time in seven weeks and settle well below a six-month high touched on Wednesday.

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