The Pound Sterling reached a two-month high against the US Dollar, nearing 1.2680, during European trading hours on Friday. Despite upbeat UK Retail Sales data for January, the British currency surrendered its intraday gains as the US Dollar rebounded, leaving the GBP/USD pair struggling to maintain bullish momentum around 1.2650. The recent release revealed a robust 1.7% increase in retail sales following a contraction of 0.6% in December, fostering optimism about the UK economy.
The 14-day Relative Strength Index (RSI) for the GBP/USD pair remained above 60.00, reflecting continued bullish momentum. However, analysts caution that this momentum could wane if the RSI fails to sustain above this level. The currency pair also faced a critical resistance zone at the 50% Fibonacci retracement level of 1.2767, while the February 11 low of 1.2333 served as a key support area.
The Pound Sterling showed resilience against its major counterparts, excluding the US Dollar, as traders absorbed the positive retail sales figures. Year-on-year retail sales rose by 1%, surpassing the forecasted 0.6% increase, though still trailing behind the 2.8% growth recorded over the previous twelve months ending in December.
The robust retail sales data is anticipated to compel traders to reconsider their expectations regarding the Bank of England's monetary policy decisions. The possibility of an interest rate cut in March has been increasingly questioned, especially after January's hotter-than-expected Consumer Price Index (CPI) report and strong Average Earnings data for the three months ending December.
Despite posting a fresh two-month high earlier in the day, the Pound Sterling lost ground against the US Dollar as the American currency staged a comeback. The GBP/USD pair's inability to gather sufficient bullish momentum to move higher was evident as it hovered near 1.2650 during Friday's European session.
The GBP/USD pair strengthened after breaching the 38.2% Fibonacci retracement from the end-September high to the mid-January low downtrend, which coincided with the 100-day Exponential Moving Average (EMA) around 1.2620. This technical development initially supported the upward movement of the Pound Sterling before it reversed course.
Market participants are keeping a close watch on upcoming data releases that could further influence the GBP/USD pair. In particular, the preliminary S&P Global US PMI data for February is expected to play a significant role in shaping market sentiment and determining future price action.