GBP/USD portrays anxiety ahead of US inflation below 1.2760 hurdle, UK sanctions on China loom

• GBP/USD holds lower ground at weekly bottom during three-day losing streak, lacks momentum of late.
• UK PM Sunak braces for US-like technology ban on China.
• Market sentiment dwindles as Sino-American tussles were mostly priced in.
• US CPI for July appears the key but UK recession woes prod Cable buyers ahead of British GDP.

GBP/USD stays defensive around 1.2715-20 heading into Thursday’s London open as market players remain cautious ahead of the US inflation data for July. Also acting as the barrier for the Pound Sterling traders is the news suggesting the UK’s step to ban on China technology investments. Furthermore, fears of the British recession and likely higher rates in London seem to also challenge the Cable pair.

Financial Times (FT) came out with the news suggesting that UK Prime Minister Rishi Sunak is weighing whether to follow US president Joe Biden in restricting outbound investment into the Chinese tech sector, including artificial intelligence, chips and quantum computing. The news gains popularity as UK PM Sunak seeks acceptance among the political fraternity after witnessing the latest disappointment in the by-elections.

Elsewhere, the UK's leading thinktank, the National Institute of Economic and Social Research (NIESR), said late Tuesday, per The Guardian, that it would take until the third quarter (Q3) of 2024 for British output to return to its pre-pandemic peak.  “There was a 60% risk of the government going to the polls during a recession,” adds the NIESR per The Guardian. On the positive side, the NIESR also expects the UK inflation to stay beyond the Bank of England’s (BoE) 2.0% target for the next four years and push the “Old Lady”, as the BoE is sometimes called informally, toward hawkish moves and defend the British Pound (GBP) bulls.

On a broad front, the market’s risk appetite remains dicey as traders’ want for the US Consumer Price Index (CPI) and the preliminary readings of the UK’s second quarter (Q2) Gross Domestic Product (GDP) contrast with the US-China tension.

Earlier in the day, US President Joe Biden signed the much-awaited bill that allows the US Treasury Department to prohibit or restrict certain US investments in Chinese entities, per Reuters. In a retaliation, China's Commerce Ministry showed grave concerns and marked the right to take measures, per Reuters. However, such issue was long discussed and the announced steps are slightly lenient than originally planned, which in turn allowed the markets to remain cautiously optimistic.

That said, the looming economic fears from China, Europe and the UK join the global rating agencies’ crackdown on banks to weigh on the sentiment. On the same line are fears of deflation in China and the market’s doubts about future moves of the major central banks. However, the recent consolidation in the market ahead of the key US data allows the US stock futures and yields to improve, which in turn exert downside pressure on the US Dollar.

Even so, the US Consumer Price Index (CPI) for July, expected 3.3% YoY versus 3.0% prior, needs to print upbeat outcome to defy concerns that the Fed is near its peak rate, especially after the latest disappointment from the Nonfarm Payrolls (NFP) for the said month.

Technical analysis

GBP/USD portrays a sustained trading below the 50-DMA hurdle of around 1.2760, which in turn joins the bearish MACD signals to direct sellers toward an ascending support line stretched from early November 2022, close to 1.2650 by the press time.