The GBP/USD pair reversed its gains around 1.2620 on Friday morning in London, shedding the positive momentum it had gained over the past three days. The Pound Sterling failed to find support despite the lackluster UK Gross Domestic Product (GDP) data, reflecting a cautious sentiment ahead of key US inflation indicators.

The final readings for the UK’s Q1 2023 GDP matched the forecasts, showing a 0.1% quarter-on-quarter and 0.2% year-on-year growth.

Earlier in the day, Lloyds Banking Group Plc released optimistic results from the UK business confidence survey, indicating a 13-month high in June. According to Bloomberg, the sentiment index rose by 9 percentage points to 37%, with executives expressing increased confidence in their own trading prospects as well as the broader market outlook.

Additionally, a significant increase in UK car production provided some support to the GBP/USD price. Reuters reported that the Society of Motor Manufacturers and Traders (SMMT) stated that 79,046 cars were manufactured in the UK last month, marking a nearly 27% year-over-year increase. However, this figure remains 31.9% lower than the output levels recorded in 2019.

On Thursday, Silvana Tenreyro, a monetary policymaker at the Bank of England, expressed contrasting views through Reuters. Tenreyro stated, “The more BoE hikes now, the sooner and faster the BoE will later need to cut rates.” Her remarks deviated from the hawkish talks of the Federal Reserve (Fed) and led to a decline in the Pound Sterling, reaching a multi-day low.

In contrast, Fed Chair Jerome Powell advocated for two more rate hikes in 2023, while Atlanta Federal Reserve President Raphael Bostic provided mixed signals but maintained an overall hawkish stance.

In addition to the relatively more hawkish tone from the Fed, optimistic US data raised doubts about the recent surge in the GBP/USD pair. The final readings of the Annualized Gross Domestic Product (GDP), also known as Real GDP, showed a growth rate of 2.0% for Q1 2023, surpassing the initial estimate of 1.3%.

Furthermore, the US Weekly Initial Jobless Claims dropped to 239K for the week ending on June 23, lower than the expected 265K and the revised previous figure.

However, the Personal Consumption Expenditure (PCE) Price for Q1 2023 decreased to 4.1% quarter-on-quarter, falling slightly below the expected 4.2%, while Pending Home Sales in May slumped to -2.7% month-on-month, well below the expected 0.2% and the revised -0.4% from the previous report.

With the initial market response to the UK data being relatively muted, GBP/USD traders now anticipate the release of the US Core Personal Consumption Expenditure (PCE) Price Index for May.

This index is widely regarded as the Federal Reserve’s preferred inflation measure. It is expected to remain unchanged at 0.4% month-on-month and 4.7% year-on-year, which may enable the Fed to maintain its hawkish stance and revive bearish sentiment for GBP/USD.


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