GBP/USD bears approach 1.2700 as BoE rate hike renews British recession woes, UK Retail Sales, PMI eyed

• GBP/USD takes offers to refresh intraday low to extend BoE-inflicted losses.
• BoE’s bumper rate hike flags fears of sooner policy pivot, UK’s economic slowdown.
• Hawkish testimony from Fed Chair Powell, mixed US data and upbeat yields underpin US Dollar.
• UK’s GfK Consumer Confidence improves to 14-month high, Retail Sales, PMIs awaited for clear directions.

GBP/USD fails to cheer upbeat UK Consumer Confidence data after the Bank of England’s (BoE) bumper rate hike failed to impress the Cable buyers the previous day. That said, the Pound Sterling drops for the second consecutive day while refreshing the intraday low near 1.2725 amid very early Friday morning in the UK.

UK’s GfK Consumer Confidence for June improves to -24, the highest level since January 2022, from -27 prior, versus -26 market forecasts. Following the data, Reuters said that Britain's economy has so far avoided forecasts of a recession and GfK's measure of how consumers view the economy in the 12 months ahead increased to -25 from -30 in May while feelings about their personal finances rose by seven points to -1.

It’s worth noting, however, that the BoE-induced recession woes keep exerting downside pressure on the GBP/USD pair. That said, the Bank of England (BoE), informally known as the “Old Lady”, surprised markets by lifting benchmark rates by 50 basis points (bps) to 5% versus major expectations favoring a 0.25% rate hike on Thursday. However, the GBP/USD dropped after an initial spike as the OIS pricing of the BoE peak rate suggests a sooner end to the tightening cycle than expected. Additionally, the bumper rate hike also signals the economic toll amid the chatters of the British recession, which in turn exerted downside pressure on the Pound Sterling despite heavy rate hikes.

While the Pound Sterling was suffering from UK economic slowdown fears despite the BoE’s rate hike, the US Dollar cheered the market’s rush to risk safety after a slew of central banks announced interest rate hikes. Among them, the majority crossed the market consensus but failed to impress respective currencies on fears that the broad rate hikes have an economic toll. Additionally favoring the US Dollar was hawkish testimony from Fed Chair Powell.

That said, Fed Chairman Jerome Powell repeated most of his previous day’s remarks during his testimony 2.0, this time in front of the Senate Housing Committee. Though his statements like, “(It) will be appropriate to raise rates again this year, perhaps two more times,” allowed the US Dollar to refresh the intraday high while eyeing to reverse Wednesday’s losses.

It should be noted that downbeat comments from Thomas Barkin, President of the Federal Reserve Bank of Richmond, as well as US Treasury Secretary Jannet Yellen, prod the US Dollar Index bulls earlier in the day. That said, Fed’s Barkin showed readiness to vote for rate cuts on conviction of a slowdown in inflation while US Treasury Secretary Yellen flags recession fears as Fed tightens policy.

Against this backdrop, the S&P500 Futures print mild losses around 4,415 after mixed closing of Wall Street and upbeat US Treasury bond yields. That said, the US 10-year and two-year Treasury bond yields rose the most in a week the previous day, to 3.80% and 4.79% in that order by the press time.

Moving on, GBP/USD traders should pay attention to the monthly UK Retail Sales for May and the first readings of June’s PMIs for clear directions. Should the scheduled data keep flashing upbeat outcomes, the Cable pair may consolidate the recent losses. However, the downbeat prints of the US PMIs needed to please the Pound Sterling buyers in that case.

Technical analysis

The GBP/USD pair’s daily closing below the five-month-old previous resistance line, around 1.2770 by the press time, directs bears toward an upward-sloping trend line stretched from June 05, close to 1.2695 at the latest.