- GBP/USD gained some positive traction on Friday, although it lacked bullish conviction.
- Encouraging UK retail sales data proved to be a key supportive factor.
- Stagflation fears, Brexit woes and modest dollar strength capped gains.
The pair GBP/USD traded with a slight positive bias during the first half of the European session and was last seen hovering around 1.2475-1.2480, up 0.15% on the day.
Following the previous day’s modest pullback from two-week highs, GBP/USD attracted some buying on Friday and was supported by better-than-expected UK macro data. The UK Office for National Statistics reported that retail sales unexpectedly rose 1.4% in April, versus consensus estimates for a 0.2% drop.
In addition, the chief economist of the Bank of England, Huw Pill, stated that they still have to adjust their monetary policy, since the Monetary Policy Committee considers that the risks of inflation are greater. That said, a combination of factors prevented the bulls from making aggressive bets and kept the GBP/USD pair capped.
Against the backdrop of a surprise economic contraction in March, UK inflation data released on Wednesday fueled fears of stagflation. Furthermore, rising wages threaten to exacerbate inflationary pressures and hurt consumer spending. This, coupled with the gloomy economic outlook from the Bank of England and Brexit fears, should act as a headwind for the British pound.
On the other hand, the dollar’s recent pullback from two-decade highs appears to have stalled for now amid expectations of more aggressive Fed policy tightening. GBP/USD pair. That said, the risk-on momentum undermined the safe haven in the USD and extended support for the pair.
There will be no market-relevant economic data released on Friday, either in the UK or the US. However, US bond yields and general market risk sentiment could influence dollar price dynamics. This, in turn, should give the GBP/USD pair some momentum and allow traders to take advantage of short-term opportunities on the last day of the week.
Technical levels
Source: Fx Street
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