GBP/USD recovered from weekly lows, maintaining a position above the 1.2300 figure, while US Treasury bond yields reached their highest since March.
The Core PCE, Fed’s preferred inflation measure, climbed to 4.7% YoY in April, pushing the odds of a 25 bps rate increase in June to 65.4%.
Retail sales in the UK skyrocket, reaching their fastest pace in nearly two years, fueling market expectations of a significant bank rate increase, potentially up to 5.50%.
GBP/USD regained some composture past the mid-North American session and bounced off the weekly lows, clinging above the 1.2300 figure amidst a week that witnessed solid US and UK data. Therefore, the GBP/USD stays positive in the day, gains 0.19%, and trades around 1.2340s.
US equities continue to run the Artificial Intelligence (AI) frenzy underpinned by NVIDIA and Maxwell Technologies. The latest tranche of US economic data, with the Fed’s preferred gauge for inflation, the Core PCE rising to 4.7% YoY in April, and headline PCE hitting 4.4% YoY, has increased the odds for additional tightening by the Federal Reserve, with both figures exceeding estimates and previous data. Odds for a 25 bps increase at the June meeting stand at 65.4%, higher than the 17.4% a week before solid data from the US derailed the Fed’s plan to keep rates unchanged.
At the same time, Durable Good Orders printed a positive reading of 1.1% MoM in March, exceeding estimates but showing signs of slowing down, as trailed by March’s 3.3%. Later, the University of Michigan (UoM) Consumer Sentiment exceeded estimates of 57.7 at 59.2 but trailed the 63.5 previous data. Americans inflation expectations cooled down for a one-year horizon is expected at 4.1%, less than the 4.5% revealed in the last report, while for the 5-year horizon, it came at 3.1%, above April’s 3.0%.
Given the backdrop, US Treasury bond yields advance, with the 10-year benchmark note rate at 3.851%, its highest level since March 10, a headwind for the GBP/USD exchange rate. The greenback strengthened, as shown by the US Dollar Index (DXY), up 0.04%, at 104.255. If the DXY achieves a daily close above the 103.752 area, that would confirm the buck’s bullish bias.
Recently, the Cleveland Fed President Loretta Mester stood to her hawkish stance and confirmed that inflation is too high in an interview on CNBC. She said that she would revise her forecast for inflation and that more data would help her to decide on the June meeting while emphasizing that “everything is on the table” for the next FOMC decision.
Aside from this, US debt ceiling talks continued and will resume over the weekend, with both sides confident of achieving a deal before the US Treasury runs out of cash by June 1.
On the UK front, Retail Sales rose to its highest pace in almost two years. That, alongside high inflation data revealed during the week, spurred a reaction in the swaps markets, with most traders expecting at least 100 bps of increase to the bank rate, which would reach 5.50%.
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