GBP/USD licks UK inflation, Fed inflicted wounds around mid-1.2000s as US Dollar retreats

• GBP/USD grinds near intraday high as it consolidates the biggest daily loss in a fortnight.
• UK inflation, employment numbers raise doubts on BoE rate hike bias.
• US data propel hawkish Fed bets and propel yields, US Dollar.
• Mixed sentiment allowed Cable bears to take a breather ahead of second-tier US data, UK Retail Sales.

GBP/USD seesaws around the intraday high of 1.2044 as it pares the previous day’s heavy losses during sluggish early hours of trading on Thursday. That said, the Cable pair dropped the most in a fortnight the previous day after the UK data poured cold water on the face of Bank of England (BoE) hawks. Also drowning the quote were upbeat US data that propelled the bets of higher Federal Reserve (Fed) interest rates.

In addition to the lack of major data/events, the risk-positive headlines from China and fears surrounding the US debt ceiling also seemed to have helped the GBP/USD pair in trimming the latest losses.

China President Xi Jinping recently crossed wires while showing readiness to deepen industrial and investment cooperation with Asia. “Willing to share ultra-large-scale markets, complete industrial systems and advanced technologies with central Asian countries,” said China’s Xi.

On the other hand, fears of witnessing the US debt-ceiling crisis, as warned by the US Congressional Budget Office (CBO) on Wednesday per Reuters, seem to probe the US Dollar bulls at the multi-day high and allow the GBP/USD to lick its wounds.

Amid these plays, the US Dollar Index (DXY) eases to 103.70, after rising to a fresh six-week high the previous day. Further, S&P 500 Futures rise 0.20% but whereas the US 10-year Treasury bond yields retreat following the run-up to a 1.5-month high marked on Wednesday.

On Wednesday, the UK Consumer Price Index (CPI) dropped to 10.1% YoY in January versus 10.3% market forecasts and 10.5% previous readings. With this, the headline inflation marks the third monthly decline after rising to the 41-year high in October. More importantly, the Core CPI, which excludes volatile food and energy items, slid to 5.8% on a yearly basis compared to the 6.2% expected and 6.3% in previous readings.

Alternatively, US Retail Sales growth jumped to 3.0% YoY in January versus 1.8% expected and -1.1% prior. Further, The Retail Sales ex-Autos grew by 2.3% in the same period, compared to analysts' estimate of +0.8%. On the same line, the NY Empire State Manufacturing Index for February improved to a three-month high of -5.8 versus -18.0 expected and -32.9 market forecasts. Alternatively, the US Industrial Production marked 0.0% MoM figures for January, compared to analysts’ estimate of 0.5% and -0.7% previous readings, but failed to push back the hawkish bias surrounding the Federal Reserve’s (Fed) next move.

It should be noted that the market’s bets on the Fed’s next moves, as per the FEDWATCH tool of Reuters, suggest the US central bank’s benchmark rate is to peak in July around 5.25% versus the December Federal Reserve prediction of 5.10% top rate.

Moving on, a light calendar in the UK may allow GBP/USD to grind higher ahead of the US data concerning the housing market, industrial activity and producer prices. Following that, the UK Retail Sales for January, up for publishing on Thursday, will be eyed for clear directions.

Technical analysis

GBP/USD rebounds from a six-week-old support line near 1. 2000. The recovery moves, however, remain elusive considering the quote’s sustained U-turn from the 50-DMA and the bearish MACD signals.