GBP/USD rises on strong UK retail sales, despite mixed US data

• GBP/USD rises as UK retail sales beat forecasts amid volatile US data.
• The rise in the PPI in the US exceeds expectations, indicating that inflation continues; Rising sales in the UK reflect consumer optimism.
• The Fed's caution regarding inflation weakens the Dollar; Bank of England rate cut prospects change with latest economic data.

The British Pound rises during the North American mid-session on Friday and is trading at 1.2617, with a gain of 0.14% at the time of writing. Economic data from the United States (US) briefly capped gains, but a better-than-expected UK retail sales report boosted the pair. GBP/USD for the second consecutive day.

Pound Sterling Supported by UK Retail Sales Despite Lackluster GDP

The US Producer Price Index (PPI) for January rose 0.9% year-on-year, above forecasts. The core PPI surged surprisingly, beating estimates of 1.6%, and rose 2%, up from last month's 1.8% advance. At the same time, construction permits fell -1.5%, while housing starts plummeted -14.8%, from 1,562 million to 1,331 million.

According to a survey by the University of Michigan, American consumer sentiment improved from 79.0 to 79.5 points in February. Americans were more confident in the downward trend in inflation, since one-year expectations stood at 3%. For a five-year period, the estimates remained unchanged at 2.9%.

The data led to a rally in US Treasury yields, but the dollar gave back some of its gains late in the session, as shown by the US Dollar Index (DXY). The DXY, which tracks the dollar's performance against other currencies, fell 0.10% to 104.17.

Federal Reserve spokesmen crossed the wires. Atlanta Fed President Raphael Bostic (voting) said he needs more data to convince him that inflationary pressures are easing, while he kept the door open to cutting rates at some point. Lately, San Francisco Fed President Mary Daly stated that the Fed must be patient with inflation and stressed that “there is more work to do.”

Traders in the swap market continued to value a less dovish Fed. Data from the Chicago Board of Trade (CBOT) shows that traders expect rate cuts of 98 basis points by the end of the year.

On the other hand, retail sales in the United Kingdom soared, with a rise of 3.4% compared to December, the largest in three years, more than double the consensus of 1.5%. However, Thursday's GDP report suggests that the economy entered a recession in the second half of 2023 due to the rise in interest rates set by the Bank of England (BoE).

Wednesday's inflation report, while down, remained stable, offsetting rate cut expectations. Money market futures data forecasts the BoE to cut rates by 75 basis points by the end of 2024.

GBP/USD Price Analysis: Technical Outlook

The GBP/USD pair appears to have bottomed around the 200-day moving average (DMA), which stands at 1.2562, but has bounced off that level on two occasions. Although this could be considered bullish, the next resistance lies at the 50-day moving average at 1.2671 before the pair can challenge 1.2700. On the other hand, if the sellers intervene and push prices back to the 1.25 area, a retest of the 200-DMA is expected, followed by the current week's low of 1.2535 before 1.2500.