GBP/USD erased a large portion of its daily losses after dropping to 1.2550 following the stronger-than-forecast US producer inflation data. With markets turning cautious in the American session, however, the pair struggles to reclaim 1.2600.
GBP/USD benefited from the renewed US Dollar (USD) weakness and snapped a three-day losing streak on Thursday. The pair, however, lost its recovery momentum after testing 1.2600 and edged lower in the early European session on Friday.
The 10-year US Treasury bond yield continued to correct lower following the disappointing Retail Sales data from the US on Thursday and weighed on the USD.
Meanwhile, Bank of England’s Monetary Policy Committee (MPC) member Megan Greene reiterated on Thursday that the monetary policy will need to remain restrictive for some time, further supporting GBP/USD.
Early Friday, the UK’s Office for National Statistics reported that Retail Sales rose 3.4% on a monthly basis in January. Although this reading surpassed the market expectation for an increase of 1.5% by a wide margin, it failed to trigger a noticeable market reaction.
In the second half of the day, January Producer Price Index (PPI) data from the US will be watched closely by market participants.
On a monthly basis, the PPI is forecast to increase 0.1% following the 0.1% decrease in December. A negative print could revive expectations for a Federal Reserve rate cut in May and hurt the USD with the immediate reaction. On the other hand, a stronger-than-forecast increase is likely to weigh on GBP/USD by allowing the USD to stay resilient against its rivals ahead of the weekend.
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