GBP/USD rises above 1.2850 ahead of UK Retail Sales figures

• GBP/USD extends its gains due to improved risk sentiment following improved US Retail Sales.
• The Pound Sterling appreciates as UK Retail Sales data is expected to show growth in July.
• The US Dollar struggles due to fully pricing in of a 25 basis point rate cut by the Fed in September.

GBP/USD continues to strengthen for the second consecutive session, trading around 1.2870 during the Asian hours on Friday. The improved risk sentiment, driven by a stronger-than-expected recovery in US Retail Sales, has eased concerns about a potential US recession and boosted risk-sensitive currencies like the Pound Sterling (GBP).

Additionally, the British Pound gained ground due to positive key economic data released on Friday, including Gross Domestic Product (GDP) data, from the United Kingdom (UK). The UK economy expanded 0.6% quarter-on-quarter in the second quarter, as expected. Meanwhile, the GDP rose 0.9% YoY in Q2 vs. 0.9% expected and 0.3% booked in Q1.

Traders await the UK Retail Sales data scheduled for release on Friday, with expectations of a month-on-month rebound to a 0.5% increase for July, up from the previous decline of 1.2%. Additionally, annual growth is projected to rise by 1.4%, reversing the prior decline of 0.2%.

The US Dollar (USD) depreciates as traders fully price in a 25 basis point rate reduction by the US Federal Reserve for September. However, a 50 basis point cut remains a possibility, with the CME FedWatch tool indicating a 26% chance of such a move.

However, the Greenback received support following recent better-than-expected US figures released on Thursday. The US Census Bureau reported that US Retail Sales climbed 1.0% month-over-month in July, a sharp turnaround from June's 0.2% decline, surpassing the projected 0.3% increase. Moreover, Initial Jobless Claims for the week ending August 9 reached 227,000, lower than the forecast of 235,000 and down from 234,000 the previous week.

Furthermore, the preliminary US Michigan Consumer Sentiment Index for August and Building Permits for July will be eyed later in the North American session.