• GBP/USD portrays corrective bounce off six-week low on strong UK Retail Sales.
• UK Retail Sales grew 0.5% MoM versus -0.3% expected, -1.0% prior.
• Broad US Dollar strength on hawkish Fed concerns, upbeat US data keep bears hopeful.
• Fed Minutes, preliminary PMIs for February eyed for clear directions.

GBP/USD bounces off a 1.5-month low to 1.1950 as UK Retail Sales for January offered a positive surprise. Adding strength to the rebound could be the Brexit optimism. However, broad US Dollar strength weighs on the Cable pair.

UK Retail Sales grew 0.5% MoM versus -0.3% market forecast and -1.0% previous readings. That said, the YoY figures came in as -5.1% compared to -5.5% consensus and -5.8% prior.

Also read: UK Retail Sales jump 0.5% MoM in January vs. -0.3% expected

Late on Thursday, BBC News came out with the headlines suggesting an imminent deal between the UK and the EU on the Northern Ireland Protocol. “Prime Minister Rishi Sunak has arrived in Northern Ireland to hold talks with Stormont party leaders,” said BBC News.

It’s worth noting that the latest improvement in UK Retail Sales remains insufficient to overcome the dovish Bank of England (BoE) bias that takes clues from the downbeat British employment and inflation data, published earlier in the week. Additionally, the Northern Ireland trade deal is the gemstone of Brexit and hence the European Union (EU) may not easily give up on it, which in turn raises doubts about the latest optimism triggered through the BBC news.

Furthermore, a slew of clues for the US inflation, employment and output conditions push back the Fed’s policy pivot talks and help the Federal Reserve (Fed) officials to suggest higher rates. The same could be witnessed in the latest read of the FEDWATCH tool, observed via Reuters, which suggests more market bets on the higher Fed rate than earlier signaled by the US central bank in December. That said, Cleveland Fed President Loretta Mester and St. Louis Federal Reserve's James Bullard were the latest to sound the hawkish alarm.

It should be observed that the fears surrounding China also weigh on the sentiment, in addition to the high Fed rate concerns, which in turn allow the US Dollar to cheer its haven status and drown the GBP/USD pair.

Against this backdrop, S&P 500 Futures dropped half a percent intraday to 4,086 while poking the weekly low after falling the most in a month on Thursday. Additionally, the US 10-year Treasury bond yields rise to a fresh high since December 30, 2022, whereas the two-year US Treasury bond also renews its highest levels since November 2022.

Having witnessed the initial reaction to the UK data, GBP/USD is likely to remain pressured amid a lack of major data/events and comparatively stronger market belief over the Fed’s next moves, versus the pessimism surrounding the BoE.

Technical analysis

A sustained downside break of a 1.5-month-old ascending trend line joins bearish MACD signals to keep GBP/USD bears hopeful of breaking an upward-sloping support line from November 17, 2022, around 1.1920 by the press time, becomes an important support to watch.