Sterling tests 1.28 after upbeat US retail sales reduced Fed cut odds
GBP/USD traded lower, testing support at 1.28 in North America, after U.S. retail sales and jobless claims data suggested the economy may not be slowing as much as expected, which led to a rise in U.S. rates, tempering more dovish Fed rate expectations for September and the end of 2024.
Recently, GBP/USD had risen due to dovish Fed rate expectations following soft U.S. payroll data, which increased the odds for significant rate cuts. Futures markets had been pricing in over 50% odds for a 50bp cut in September, and additional cuts of 5-25bps by the end of 2024. However, today’s data has reduced those odds considerably. The idea of a dramatic 50bp cut may have been overly ambitious.
The Fed has been preparing markets for eventual rate cuts, emphasizing data dependence and vigilance to reduce market volatility. With headline and core inflation near 3%, the Fed is likely to avoid a dramatic 50bp move, which could signal a loss of control over the economy.
Currently, resistance is near 1.2870, the high area of the last three days, with support at the daily cloud top at 1.2782. Given summer liquidity, Friday’s July UK retail sales, forecasted to be well above June’s, may lift GBP/USD back toward trend highs if the data beats expectations.
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GBP Chart: https://tmsnrt.rs/3YFsEeS
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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