GBP/USD holds auction above 1.2420 amid subdued USD Index, UK Retail Sales eyed

• GBP/USD is consolidating above 1.2420, following the footprints of the USD Index.
• US firms are expected to announce mute revenue guidance due to higher rates by the Fed and tight credit conditions.
• The major driver of sticky United Kingdom inflation is the rising food prices.

The GBP/USD pair is displaying a back-and-forth action above 1.2420 in the Asian session. The Cable has turned sideways amid subdued performance by the US Dollar Index (DXY). The USD Index is struggling to find a decisive direction amid an absence of a potential trigger. However, a sheer volatility contraction in the USD Index is expected to deliver explosive moves ahead.

Market sentiment seems negative as the S&P500 futures have registered losses in the Asian session. The 500-US stock basket futures have settled on a mildly negative note in the past two trading sessions, however, a stock-specific action remained elevated due to the quarterly results season.

Investors are worried that firms are forced to squeeze their revenue guidance due to higher interest rates from the Federal Reserve (Fed). Also, declining loans and advances to consumers and businesses by United States banks after the banking turmoil are expected to put extreme pressure on the working capital requirements of firms.

On the Pound Sterling front, the synergic effect of higher Average Hourly Earnings and double-digit headline inflation would not allow the Bank of England (BoE) for consideration of pausing the policy-tightening spell. The major driver of sticky United Kingdom inflation is the rising food prices. UK’s Office for National Statistics (ONS) reported that food inflation has printed a fresh 45-year high of 19.1%.

This week, UK Retail Sales (March) data will be keenly watched. Monthly Retail Sales data is expected to contract by 0.5% vs. an acceleration of 1.2% reported in February. While annual Retail Sales would show a contraction of 3.1% against the 3.5% contraction shown earlier. A contraction in retail demand would provide some relief to the BoE policymakers.