The GBP/USD pair drifted modestly lower on Friday, slipping below the 1.3400 level after weaker-than-expected UK Retail Sales data and cautious remarks from Federal Reserve officials weighed on sentiment. At the time of writing, the pair was trading near 1.3370, little changed on the day but under mild downside pressure.
Sterling softens after disappointing UK data as central bank caution persists
Sterling came under pressure after UK Retail Sales data missed market expectations. According to the Office for National Statistics (ONS), Retail Sales rose 0.6% year-on-year in November, unchanged from the previous reading but below forecasts of a 0.9% increase. On a monthly basis, sales declined by 0.1%, compared with expectations for a 0.4% gain.
The data were released a day after the Bank of England (BoE) delivered a rate cut in response to easing inflation pressures. On Thursday, the BoE reduced borrowing costs in a narrow 5–4 vote. Governor Andrew Bailey sided with the hawkish camp, stressing that the future path of interest rates remains uncertain. While he acknowledged encouraging signs in inflation persistence, he emphasized that risks remain broadly balanced.
In the United States, comments from Federal Reserve officials reinforced a cautious policy stance. New York Fed President John Williams noted that some recent data point to further disinflation, while suggesting that the rise in the unemployment rate may partly reflect temporary distortions. He added that he does not see an urgent need to adjust monetary policy at this stage.
Further weighing on sentiment, the University of Michigan reported that U.S. Consumer Sentiment in December came in at 52.9, below expectations of 53.4. The survey showed that conditions for purchasing durable goods deteriorated for a fifth consecutive month, signaling slowing consumer spending. Respondents also expect the unemployment rate to rise over the next year.
On inflation expectations, one-year expectations increased to 4.2%, while the five-year outlook remained unchanged at 3.2%.
BoE versus Fed: policy timing in focus
Against this backdrop, market expectations for the Federal Reserve to begin easing policy in the first half of the year remain largely unchanged, with the probability of a June rate cut standing at around 53%. For the Bank of England, markets have fully priced in a first rate cut by June as well, although expectations for an earlier move in March are relatively elevated at roughly 40%, according to Capital Edge rate probability data.
If the BoE is forced to move ahead of the Fed, GBP/USD could face additional downside pressure.
GBP/USD technical outlook
From a technical perspective, GBP/USD has lost bullish momentum after failing to hold above the 1.3400 level. The pair is now edging toward the 200-day simple moving average (SMA) near 1.3350. A decisive break below this level would expose support at 1.3302, followed by the 50-day SMA at 1.3253.
The Relative Strength Index (RSI) remains in bullish territory but is trending lower, suggesting that selling pressure is beginning to outweigh buying interest.
For a renewed bullish move, buyers would need to reclaim the 1.3400 level to revive prospects of a push toward higher price levels.
