GBP/USD bears eye 1.2800 as UK inflation clues test BoE hawks, focus on US ISM PMI

• GBP/USD stays pressured after downbeat week-start, reverses Friday’s corrective bounce off multi-day low.
• UK BRC inflation catalyst suggests the first fall in prices in two years, British mortgage approvals and consumer credit jump.
• Fresh challenges to sentiment also weigh on Cable pair.
• UK/US activity data for July to direct intraday moves of Pound Sterling, BoE is the key.

GBP/USD holds lower grounds near 1.2830 as it keeps the week-start losses after witnessing a downbeat UK inflation signal early Tuesday morning in Asia. In doing so, the Cable pair also justifies the broad US Dollar strength ahead of the US ISM Manufacturing PMI for July, as well as the final readings of US S&P Global PMIs and the UK S&P Global/CIPS Manufacturing PMI for the said month.

The British Retail Consortium (BRC) Shop Price Index for June eased to 7.6% versus 8.4% prior, as well as the three-month average of 8.4%, while marking the first fall in two years late Monday. Following the data, BRC Chief Executive Helen Dickinson spotted optimism in the latest figures while also stating the existence of “dark clouds on the horizon”.

Alternatively, the Bank of England (BoE) survey showed Monday that British lenders approved more mortgages than expected in June and net unsecured lending to consumers shot up by the most in over five years, despite rising interest rates, reported Reuters.

It’s worth noting that the market’s recent easing in the hawkish bias about the BoE, amid mixed UK data, weighs on the GBP/USD pair of late. Also exerting downside pressure on the Pound Sterling could be the latest challenge to the sentiment and the firmer US Dollar despite unimpressive US data.

Market sentiment dwindles as China's Commerce Ministry renews the Sino-US trade war fears by announcing measures to limit exports of some drones and drone-related equipment, starting from September 01, by citing the “national security and interests” late Monday suggests Reuters. On the same line is the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) which said the US banks reported tighter credit standards and weaker loan demand during the second quarter (Q2 2023).

Also important to observe is the fact that the US Dollar Index (DXY) managed to remain firmer on Monday, grinding higher towards 102.00 by the press time, despite witnessing mixed US data. That said, Dallas Fed Manufacturing Business Index improves to -20.0 for July from -23.2 prior versus -26.3 expected whereas Chicago PMI rose to 42.8 from 41.5 prior versus 43.0 market forecasts. In doing so, the DXY ignores Friday’s softer prints of US inflation clues and the weekend comments from Minneapolis Fed President Neel Kashkari’s criticism of higher interest rates.

Against this backdrop, S&P500 Futures remain sidelined after posting an upbeat start to the week while the United States Treasury bond yields pick up bids after declining in the last two consecutive days.

Moving on, the final readings of the UK S&P Global/CIPS Manufacturing PMI for July and the US S&P Global PMIs for the said month will entertain the GBP/USD pair traders ahead of the US ISM Manufacturing PMI. Should the scheduled data and sour sentiment manages to impress the US Dollar bulls, the GBP/USD pair may break the key 1.2780 support.

Technical analysis

Although an ascending support line from late May restricts the immediate downside of the GBP/USD pair near 1.2780, the Pound Sterling buyers need validation from the 1.2870 resistance confluence comprising the 10-DMA and 12-day-old descending trend line.