GBP/USD dives below 1.3500 after weak UK data, resurgent USD

GBP/USD dives below 1.3500 after weak UK data, resurgent USD

GBP/USD turned red for the day and approaches the 1.3450 area as the week comes to an end. Earlier in the day, the UK reported weak Retail Sales figures, although the ongoing slump seems related to renewed risk aversion fueling safe-haven US Dollar demand. 

GBP/USD Technical Overview

GBP/USD climbed above the 200-period Simple Moving Average (SMA) on the 4-hour chart and the Relative Strength Index (RSI) indicator recovered slightly above 50, highlighting a loss of bearish momentum.

On the upside, 1.3520 (50-period SMA, 100-period SMA, Fibonacci 23.6% retracement of the latest uptrend) aligns as a strong resistance level before 1.3600 (static level, round level) and 1.3630 (end-point of the uptrend). Looking south, supports could be spotted at 1.3450-1.3440 (Fibonacci 38.2% retracement, 200-period SMA), 1.3400 (Fibonacci 50% retracement) and 1.3340 (Fibonacci 61.8% retracement).

Fundamental Overview

The Bank of England (BoE) announced on Thursday that it maintained the bank rate at 4.25%, as expected. Three members of the Monetary Policy Committee (MPC), however, voted in favor of a 25 basis points (bps) rate cut, citing material further loosening in the labour market, subdued consumer demand and pay deals near sustainable rates. In the policy statement, the BoE reiterated that a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.

Although GBP/USD edged lower with the immediate reaction, the renewed US Dollar (USD) weakness helped the pair gain traction in the second half of the day.

Improving market mood on news of US President Donald Trump giving Iran another chance to make a deal to end its nuclear program and delaying his final decision on launching strikes for up to two weeks caused the USD to lose interest.

Early Friday, the data published by the UK's Office for National Statistics showed that Retail Sales declined by 2.7% on a monthly basis in May. This reading came in worse than the market expectation for a decrease of 0.5% but failed to trigger a noticeable market reaction.

In the absence of high-impact data releases, market participants are likely to remain focused on geopolitics. A bullish opening in Wall Street could hurt the USD and help GBP/USD edge higher heading into the weekend. Nevertheless, investors could remain reluctant to bet on a persistent Pound Sterling strength following the BoE event.