GBP/USD remains capped below 1.2600 following UK retail sales data

• GBP/USD remains on the defensive around 1.2590 in the early stages of the European session on Friday.
• UK retail sales were better than expected, rising 3.4% month-on-month in January, compared to a 3.3% decline in December.
• Weak US retail sales in January raised concerns that the Fed could cut interest rates sooner than expected.
• On Friday the Production Price Index (PPI) for January in the United States will be published.

The pair GBP/USD remains limited below the psychological level of 1.2600 during the early hours of the European session on Friday. Encouraging UK retail sales data failed to boost the British Pound (GBP) as investors continue worried about UK growth figures for Q4, which indicated that the UK economy entered a technical recession. The GBP/USD pair is currently trading near 1.2584, losing 0.10% on the day.

The publication of the latest data from the United Kingdom Office for National Statistics has shown that The country's retail sales increased 3.4% month-on-month in January, compared to the previous reading of a 3.3% decline, coming in stronger than the 1.5% estimate. On an annual basis, retail sales rose 0.7% year-on-year in January, down from a 2.4% drop in the previous reading.

UK Gross Domestic Product (GDP) figures for the fourth quarter, due to be published on Thursday, indicate that The British economy entered a technical recession in the second half of 2023, before the general elections scheduled for this year. The report of GDP growth figures could pressure the BoE to cut rates as early as May. However, policymakers at Britain's central bank want more evidence that inflation will return to target rather than drifting higher again before banking on cutting rates.

Across the Atlantic, weaker-than-expected US retail sales in January raised the possibility of an early interest rate cut by the Federal Reserve, dragging the dollar lower in the latest session. US retail sales fell 0.8% month-on-month in January, compared to December's 0.4% increase, worse than the estimate of a 0.1% decline. The control group of retail sales was -0.4% month-on-month compared to 0.6% previously, the US Census Bureau reported on Thursday.

Investors will be watching Production Price Index (PPI) American report for January, which will be published on Friday. If the report shows a weaker than expected result, this could put some selling pressure on the US Dollar (USD). Additionally, housing starts, building permits and consumer inflation expectations will be published in the United States. These events could give clear direction to the GBP/USD pair.