**GBP/USD Slips as Calmer US-China Rhetoric and UK Data Uncertainty Pressure Sterling**
By Nania Michaels (originally published on FXDailyReport.com)
The GBP/USD currency pair continued its downward movement in recent sessions as a combination of global political developments and mixed UK economic indicators exerted pressure on the British pound. With a more conciliatory tone emerging from discussions between the United States and China, the US dollar stabilized, leading to renewed selling in the cable pair. Meanwhile, analysts closely watched UK macro data for clues about the nation’s economic health and the Bank of England’s policy outlook.
This article discusses the latest market drivers, analyzes the technical picture for GBP/USD, and explores what’s next for the pair as traders digest shifting sentiment around geopolitics, monetary policy, and economic growth.
**US-China Relations: Market Calms as Tensions Ease**
For most of the past year, concerns over escalating tensions between the US and China rattled global markets, often benefitting the US dollar which attracts safe-haven flows. Recent diplomatic moves, however, have produced a more moderate tone, reducing investor fear and promoting risk appetite.
Key developments include:
– Senior officials from the US and China have resumed talks focused on trade, technology, and security. Both sides indicated willingness to seek pragmatic solutions.
– The Biden administration softened its rhetoric, stating it does not seek conflict with China, while emphasizing common interests such as climate action and global economic stability.
– China refrained from retaliating immediately against the latest US trade restrictions, signaling room for negotiations rather than escalation.
The calmer backdrop has produced two key outcomes in forex markets:
– Lower demand for the US dollar as a classic safe-haven, albeit with some strength remaining due to relative US economic resilience.
– Reduced tail risks for riskier currencies such as the British pound, but also lessening the urgent need for defensive dollar holdings that previously supported GBP/USD.
**UK Macro Data: Uncertainty Dominates Outlook**
Sterling’s performance remains closely tied to the outlook for the UK economy and the Bank of England’s monetary policy path. Recent data releases have painted a mixed and uncertain picture, complicating the Bank’s decisions on inflation, rates, and growth.
Highlights from the past week’s UK economic reports include:
– GDP: The latest Office for National Statistics (ONS) data showed that UK GDP shrank by 0.3 percent on a monthly basis, worse than market expectations. The contraction revised down estimates for growth this quarter, reviving fears of stagnation or even mild recession.
– Labor Market: Unemployment ticked up slightly to 4.2 percent while wage growth slowed, suggesting that the job market’s post-pandemic strength is fading. However, employment remains above pre-2020 levels.
– Inflation: Consumer Price Index (CPI) data remained high at 6.8 percent year-over-year, but the pace of increases slowed, in line with the Bank of England’s base case for inflation to gradually cool later this year.
– Retail Sales: Sales volumes fell by 0.5 percent month-on-month, as stubborn inflation and rising borrowing costs squeezed household spending.
The combination of these factors has put the Bank of England in a delicate position:
– Rate Hikes: Markets are now less certain about the size and speed of future BoE rate increases. Some analysts expect only one more hike before a pause, given signs of economic slowing.
– Forward Guidance: Unclear data makes it harder for the Bank to provide strong forward guidance, adding to volatility in pound crosses.
– Growth Risks: The risk of negative GDP prints has grown, with policymakers warning of headwinds from both global factors and domestic cost pressures.
**GBP/USD Technical Analysis: Sellers Hold the Upper Hand**
The technical outlook for GBP/USD has tilted bearish during the latest selloff, with price action confirming broader market caution toward the pound.
Key observations from recent chart activity:
– The pair broke below the psychologically significant 1.
Read more on GBP/USD trading.