GBP/USD struggles to justify hawkish BoE concerns around 1.2700, UK inflation, FOMC Minutes in focus

• GBP/USD holds lower grounds after failing to impress Cable buyers with upbeat UK growth, manufacturing/industrial output.
• Fears of heating inflation in UK employment market also defend Pound Sterling sellers.
• British economic concerns contrast with firmer US bond yields to weigh on prices.
• UK employment, inflation data will join Fed Minutes to direct weekly moves.

GBP/USD remains pressured below 1.2700, close to 1.2690 by the press time, as it fails to cheer the UK’s heating inflation concerns and upbeat growth numbers amid economic fears and broad US Dollar strength ahead of the top-tier data/events. In doing so, the Cable pair justifies firmer US Treasury bond yields.

As per the latest survey from the UK’s Chartered Institute of Personnel and Development (CIPD), human resources executives expected to increase basic pay rates by a median of 5% – unchanged from the previous two quarters and the joint-highest readings since the survey started in 2012. The CIPD poll also adds that the public sector pay expectations rose to the record high of 4.0% from 3.3%. The same escalates pressure on the Bank of England (BoE) to lift the rates amid heating inflation.

Previously, the UK economy unexpectedly grew in Q2, up 0.2%. UK GDP lifted 0.2% q/q in June, which, while low, was stronger than expectations of a flat outturn, and meaningful in the context of annual growth of just 0.4%. UK industrial production lifted 1.8% m/m in June, soundly beating expectations of just a 0.2% increase. Manufacturing output was up 2.4% m/m.

On the other hand, US Consumer Price Index (CPI) numbers for July failed to lift the Fed bets for September, suggesting the nearness to the policy pivot. However, the CPI details and other price pressure measures managed to keep the Greenback buyers hopeful. It’s worth noting that the US Producer Price Index (PPI) for July, the preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August and the UoM 5-Year Consumer Inflation Expectations for the said month helped the USD benefit on Friday. Further, the US one-year inflation outlook edged lower to 3.3% from 3.4%.

It’s worth noting that Federal Reserve (Fed) Governor Michelle Bowman backed additional rate hikes and defended the Fed hawks. However, San Francisco Fed Bank President Mary Daly, Philadelphia Fed Bank President Patrick Harker and New York Fed President John Williams signaled rate cuts in 2024 but also highlighted data-dependency and kept the policy doves looking for more details to confirm the bias.

Above all, fears of the British recession gained major attention and joined economic/geopolitical fears from China to underpin the US Treasury bond yields, which in turn exerts downside pressure on the GBP/USD price.

Looking forward, this week’s UK employment, inflation and Retail Sales numbers will be crucial for the Pound Sterling traders to watch for clear directions amid the likely hawkish move of the BoE. Also important will be the US Retail Sales and Minutes of the latest Federal Open Market Committee (FOMC) monetary policy meeting.

Technical analysis

Although a downside break of an ascending trend line from early March, around 1.2830 at the latest, keeps the GBP/USD bears hopeful, a six-week-old rising support line surrounding 1.2630 restricts immediate declines of the Cable pair.