GBP/USD stabilizes above 1.2300

• GBP/USD recovered from weekly lows, holding above 1.2300, while US Treasury yields hit their highest level since March.
• Core CPI, the Fed’s preferred measure of inflation, rose to 4.7% yoy in April, raising the odds of a 25 basis point rate hike in June to 65.4%.
• UK retail sales soared, hitting their fastest pace in almost two years, fueling market expectations of a major rise in bank rates, potentially as high as 5.50%.

The pair GBP/USD it regained some composure midway through the North American session and bounced off weekly lows, clinging above 1.2300 in the middle of a week that saw strong data in the US and UK. Therefore, GBP/USD remains positive on the day, gaining 0.19% and trading around 1.2340.

Strong economic data sets the stage for possible Fed rate hike in June; UK retail sales record their fastest pace in almost two years

US stocks continue the Artificial Intelligence (AI) frenzy propped up by NVIDIA and Maxwell Technologies. The latest set of US economic data, with the Fed’s preferred inflation gauge, Core CPI, rising to 4.7% yoy in April, and Headline CPI reaching 4.4% yoy, has raised the odds of a further tightening by the Federal Reserve, as both numbers beat previous estimates and data. The odds of a 25 basis point hike at the June meeting stand at 65.4%, up from 17.4% a week before strong US data derailed the Fed’s plan to hold rates. without changes.

At the same time, durable goods orders posted a positive reading of 1.1%m/m in March, beating estimates but showing signs of slowing. Later, University of Michigan (UoM) Consumer Sentiment topped estimates of 57.7 to settle at 59.2, but fell short of 63.5 earlier data. American inflation expectations cooled for a one-year horizon, standing at 4.1%, below the 4.5% revealed in the last report, while for a 5-year horizon they stood at 3.1%, above from 3.0% in April.

Against this backdrop, US Treasury yields are advancing, with the 10-year yield trading at 3.851%, its highest level since March 10, a headwind for the GBP/USD exchange rate. The dollar strengthened, as shown by the US Dollar Index ( DXY ), which rose 0.04% to 104.255. If the DXY achieves a daily close above the 103.752 zone, the bullish bias of the dollar would be confirmed.

Cleveland Fed President Loretta Mester recently maintained her hawkish stance, confirming that inflation is too high in an interview on CNBC. She said she would review her inflation forecast and that more data would help her decide at the June meeting, while stressing that “everything is on the table” for the next FOMC decision.

Elsewhere, US debt ceiling talks continued, due to resume over the weekend, with both sides hoping to reach an agreement before the US Treasury runs out of liquidity on June 1.

In the UK, retail sales reached their highest level in almost two years. This, together with the high inflation data revealed during the week, caused a reaction in the swap markets, with most traders expecting at least a 100 basis point increase in the bank rate, which would reach 5.50%.

GBP/USD Technical Levels