GBP/USD slumps on strong US producer inflation, Fed rate cut odds trim

• Pound drops versus strong Dollar post-US PPI, indicating inflation.
• US Retail Sales resilience muddles Fed rate cut forecast.
• UK growth adjusts BoE cut expectations in global policy reevaluations.
• The US job market and higher Treasury yields strengthen the US Dollar, weighing on  GBP.

The Pound Sterling tumbled against the US Dollar on Thursday after the US Department of Labor announced a rebound on inflation on the producer side that could dent the Federal Reserve’s easing policy. Therefore, the GBP/USD edges lower, trading at 1.2748, down 0.38%.

GBP/USD weakens as US economic data prevent Fed from easing policy, as US yields rise

The Greenback is gathering momentum as it remains bid following a tranche of US economic data. US Retail Sales missed the estimates of 0.8% but improved by 0.6% MoM after plunging sharply in January. Even though the data would justify a rate cut by the Federal Reserve, a measure of inflation on the producer side known as the Producer Price Index (PPI), reaccelerated.

February’s PPI was strong, at 1.6% YoY, up from 0.9%, while the core PPI stood at 2% unchanged. Both figures exceeded estimates.

The labor market remained tight, as Initial Jobless Claims for the last week dipped from 210K to 209K, below estimates of 218K.

After the data US Treasury bond yields had risen sharply, with the 10-year benchmark note rate sitting at 4.296%. The US Dollar Index (DXY), a gauge of the buck’s performance versus other currencies, climbed 0.53%, yo at 103.33.

Across the ponds, the latest GDP figures for the UK showed the economy exited from a recession and grew 0.2% MoM in January. This has pushed back expectations for a Bank of England rate cut from June to August.

Given the backdrop of the Fed's expected decrease in interest rates in June, the GBP/USD should be favored in the near term. However, if US data continues to remain strong, further GBP/USD downside is seen.

GBP/USD Price Analysis: Technical outlook

The daily chart portrays the pair has broken the previous weekly low of 1.2744, but a daily close below that level is needed, before the Pound Sterling weakens further. In that event, the next support would be 1.2700, followed by fresh lows at the 50-day moving average (DMA) at 1.2685. On the other hand, if buyers reclaim 1.2800, look for a test of weekly highs at 1.2823.