Sterling Faces Dual Pressures from Weak Data and Diverging Yield Spreads
GBP/USD reversed its early NorAm slide on Thursday, bouncing from a session low of 1.2176 to 1.2260 after dovish comments from Fed Governor Waller softened the dollar. However, the pair remains under pressure as weak UK GDP and output data amplified concerns over the UK’s economic resilience and increased odds of BoE rate cuts in February. The pound’s decline from its post-CPI high above 1.23 reflects a combination of waning UK rate expectations and growing U.S. yield advantages, highlighting the dual pressures on sterling from weak domestic data and a robust dollar.
Technical Analysis
Technically, GBP/USD faces significant resistance and downside risks. Immediate resistance lies at Thursday’s high of 1.2260, with additional barriers at 1.2320 (falling 10-day moving average) and 1.2455, the 50% retracement of the 1.2811-1.21 decline. Support is seen at 1.2167, the lower 30-day Bollinger Band, followed by 1.2140 (January 14 low) and the critical 2024 low of 1.21 set on January 13. A break below 1.21 could expose the pair to further declines, potentially targeting late-2023 lows near 1.20 and early 2023 lows at 1.18.
Market Outlook
Upcoming data will be critical for GBP/USD’s direction. Friday’s UK retail sales and U.S. industrial production, capacity utilization, and manufacturing output data could provide fresh insights into central bank policy paths. A softer UK retail sales print would reinforce the dovish BoE narrative, pressuring sterling further. Conversely, weak U.S. data could temper dollar strength, offering GBP/USD some respite. However, with fiscal concerns and the UK’s low yield outlook weighing heavily, sterling remains vulnerable to further declines unless significant bullish catalysts emerge.