Title: GBP/USD drops towards yearly low near 1.1400 on downbeat UK Retail Sales

September 16, 2022 02:07 AM ET

By: AnalysisWatch

The GBP/USD pair hit an intraday low around 1.1440 after UK retail sales fell more than expected in August, according to the latest data released early Friday. Fed hawkish bets and a rebound in U.S. Treasury yields reinforce the bearish bias.

UK retail sales for August marked a 5.4% year-on-year contraction versus -4.2% expected and -3.4% previously. The details suggest that retail sales excluding fuel printed a 5.0% figure versus a market consensus of 3.4% and a previous reading of 3.1%.

In addition to the bearish UK data contributing to a significant portion of GDP, hawkish Fed bets and a recovery in US Treasury yields are also weighing on GBP/USD prices.

That said, the latest Fed hawkish bets readings from CME's FedWatch tool suggest that the market has priced in Fed rate hikes of 0.75% and 1.0% at next week's meeting with 76% and 24% odds, respectively.

In addition, U.S. 10-year Treasury yields reversed the early Asian session's decline to regain the 3.46% mark by press time, after rising 1.38% the previous day. As a result, the negative divergence with two-year bond yields remains a source of concern for investors, weighing on GBP/USD prices. Nevertheless, by press time, two-year U.S. Treasury yields had reached their highest level since late 2007, at 3.892%.

It is worth noting that the Bloomberg article referring to the fears of September 16, 1992, dubbed "Black Wednesday," seems to have drowned out the GBP/USD price.

On the other hand, record UK inflation expectations, as well as growing confidence in the BOE, have challenged GBP/USD bears before.

After witnessing the initial reaction to the UK data, GBP/USD traders may be waiting for the preliminary results of the Michigan Consumer Confidence Index (CSI), expected at 60 from 58.2 previously. However, next week's Federal Open Market Committee (FOMC) monetary policy meeting will be the focus of attention.