During the North American session, the Pound Sterling experienced slight losses after disappointing UK Retail Sales data. The GBP/USD is currently at 1.3456, down by 0.07%. Concerns surfaced when reports indicated that the US might withdraw waivers for allies with semiconductor plants in China. The US Dollar Index (DXY) showed a small decline of 0.10%, trading at 98.62, but is poised for weekly gains of over 0.57%.

US Economic Slowdown

The US economy is slowing down, as seen in the Philadelphia Fed Manufacturing Index, which remains at -4. The Fed report noted early signs of tariffs boosting inflation, though the full effect has yet to be determined. UK Retail Sales dropped sharply by -2.7% in May, which was worse than expected. This followed the Bank of England’s decision to keep rates steady, which many viewed as dovish. Next week, the UK and US economic calendars include speeches from BoE members, GDP figures, and Flash PMIs. Technical analysis for GBP/USD shows an upward bias, with key support levels at 1.3450 and 1.3400. If bulls reclaim 1.3500, the target could shift to 1.3550. Retail data from the UK surprised the markets with a larger drop than anticipated, mainly due to decreasing consumer demand and tighter household budgets. The monthly decline of -2.7% highlights how energy and food inflation have been reducing discretionary spending. Traders should note that such dramatic changes typically don’t stabilize quickly without either a policy shift or a boost in sentiment indicators.

Central Bank Hesitancy

Bailey’s choice to maintain steady rates, even with inflation above the 2% target, was viewed as cautious guidance, showing more concern about growth than wage increases for now. However, the accompanying remarks indicated no rush to cut rates. This reveals a central bank reluctant to act unless pressured by concrete data, rather than forecasts. This hesitancy has dampened previous expectations of a summer rate hike, leading to weaker Sterling demand based on rate expectations. On the US side, the Philadelphia Fed’s gauge showed another negative reading, remaining at -4. This steady number reinforces the notion that US industrial activity is not picking up pace. Early signs of trade measures pushing up input costs add uncertainty to inflation expectations for Q3. While Powell has not explicitly indicated changes to policy timelines in response to this, such factors will likely come up in future discussions from the Fed. Additionally, discussions in Washington about semiconductor technology and cross-border production created slight risk-off sentiment late in the session. If waivers are revoked, it could impact global supply chains, especially concerning Taiwan and South Korea. Although markets haven’t fully factored in the potential consequences, such regulatory actions often trigger defensive positioning in currency and equity derivatives. From a technical standpoint, the 1.3450 level has reliably served as a floor for GBP/USD, with buying pressure often returning above it. To support further Sterling gains, we would need to see a clear shift above 1.3500 with strength and volume, likely backed by at least one positive UK PMI surprise next week. If momentum continues, 1.3550 could be reached quickly—but this hinges on better macro data. Volatility may reduce ahead of next week’s calendar, which includes Flash PMIs and UK GDP figures. Overall, rates pricing remains stable, but it’s important to note that reaction sensitivity cannot be overlooked—especially if any BoE speaker differs from the expected tone or if US growth numbers slip further into contraction. Monitoring relative yield spreads could provide clearer insights into directional risks. As we approach the next period, expect volatility around macro releases rather than central bank decisions, at least until Jackson Hole. For now, sensitivity stays linked to data. Traders should focus on response levels as they prepare for next week. Create your live VT Markets account and start trading now.

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