- GBP/USD lacked a firm direction and oscillated in a range through the early European session.
- A recovery in the risk sentiment undermined the safe-haven USD and extended some support.
- Bulls seemed unimpressed by upbeat UK Retail Sales amid the lack of progress on NI protocol.
The GBP/USD pair held steady above the 1.3600 round-figure mark and had a rather muted reaction to upbeat UK macro data.
Following the overnight modest pullback from the one-week high, the GBP/USD pair entered a bullish consolidation phase and oscillated in a range through the early European session on Friday. The downside, however, remains cushioned amid a recovery in the global risk sentiment, which undermined the safe-haven US dollar. Apart from this, rising bets for additional interest rate hikes by the Bank of England support prospects for some meaningful upside.
The US Secretary of State Antony Blinken accepted an invitation to meet Russian Foreign Minister Sergei Lavrov late next week and raised hopes for a diplomatic solution to the Ukraine crisis. This provided a much-needed respite to investors and drove flows away from traditional safe-haven assets. Apart from this, the uncertainty about the Fed’s tightening plans to combat stubbornly high inflation turned out to be another factor that weighed on the buck.
On the other hand, the British pound drew support from stronger-than-expected UK Retail Sales data, which recorded strong-than-anticipated growth of 1.9% MoM growth in January. Adding to this, the core sales (excluding fuel items) surpassed expectations and rose 1.7% during the reported month. Against the backdrop of this week’s stronger UK wage growth data and hotter UK inflation figures, the data validated expectations for a 50 bps rate hike at the March MPC meeting.
That said, the lack of progress in talks to resolve the problems with the Northern Ireland protocol of the Brexit agreement held back traders from placing aggressive bullish bets and capped gains. Hence, it will be prudent to wait for some follow-through buying before confirming a fresh bullish breakout and positioning for any further appreciating move. Nevertheless, the GBP/USD pair remains on track to end in the green for the third successive week.