GBP/USD plummets below 1.2500

• GBP/USD falls below 1.2500 as hopes of a Fed rate cut strengthen the US dollar.
• Market sentiment is risk averse as the Fed is expected to delay rate cuts later in the year.
• The British economy is about to emerge from a technical recession.

The GBP/USD pair falls below the psychological support of 1.2500 in the European session on Friday. The Pound weakens due to the strength of the US Dollar. Demand for the US dollar remains on the rise as persistently high US inflation data for March forced traders to dismiss expectations of rate cuts by the Federal Reserve (Fed), which were expected for the June and July meetings.

Market sentiment is bearish as the Fed is now expected to begin reducing interest rates starting with the September meeting. Additionally, investors expect only two rate cuts instead of three this year. At the beginning of the year, six cuts were expected.

S&P 500 futures have generated some losses in the European session. The US Dollar Index (DXY) rises to near 106.00 amid hopes that the Fed will begin cutting interest rates later than other central banks in developed economies. US 10-year Treasury yields fell slightly from four-month highs around 4.60%.

Looking ahead, the US dollar will be guided by monthly retail sales data for March due to be released on Friday. Monthly retail sales, which represent household spending, are forecast to have grown at a slower pace of 0.3%, down from the previous reading of 0.6%. This would alleviate fears that inflation will remain persistently higher.

In the UK, the British Pound is failing to find a bid despite encouraging factory data and a projected rise in February's monthly Gross Domestic Product (GDP). British GDP grew by 0.1%, as expected, following the 0.2% increase recorded in January. Evidence of expansion in the first two months indicates that the technical recession recorded in the second half was shallow.

Next week, the US Consumer Price Index (CPI) and labor market data will significantly influence speculation about whether the Bank of England (BoE) will begin to reduce interest rates, something that the financial markets are currently waiting from August.