Ella 
In early Asian trading on Friday, GBP/USD was hovering around 1.2410, making it difficult to reverse the previous day’s decline. GBP/USD is under downward pressure after better-than-expected US economic data.
On Thursday, core producer prices rose 2.2% in August, in line with expectations and down from the previous reading of 2.4%. Retail sales rose to 0.6%, compared with 0.5% in the previous month, and expectations were for retail sales to fall to 0.2%.
The number of people filing for unemployment benefits in the United States for the week ended September 8 was 220,000, better than the 225,000 expected. The previous value of this indicator was 217,000.
However, the CME FedWatch tool lowered the probability of a 25 basis point interest rate hike by the U.S. Federal Reserve (Fed) in November to 35%. Investors have turned cautious about the prospect of the Federal Reserve raising interest rates in November as they assess the changing economic situation and the Fed’s rhetoric.
The U.S. Dollar Index, which measures the U.S. dollar (USD) against six other major currencies, was trading near a six-month high on Thursday. At press time, the U.S. dollar index was trading around 105.40.
On the other hand, risk appetite for the pound remains unclear following weak UK economic data on Wednesday.
The decline in UK GDP data was more severe than expected. UK GDP in July recorded -0.5%, weaker than the -0.2% expected, and erased last month’s 0.5% increase. The unexpected contraction in UK GDP increased the volatility of the pound and the market’s uncertain outlook.
The British economy is trying to cope with a series of challenges posed by the Bank of England’s (BOE) tightening interest rate policy. These challenges include unusually strong wage growth and signs of slowing labor market demand.
As a result, the outlook for the UK economy is weak as overall output is shrinking in a weak demand environment. The chances of the UK economy slipping into a technical recession are high as the Bank of England has already planned further interest rate hikes.
Market participants may focus on the preliminary value of the U.S. Michigan Consumer Confidence Index released on Friday. The indicator is expected to edge down to 69.5 from 69.1. If actual indicators are in line with or exceed expectations, it could potentially provide the dollar with the momentum it needs to continue its upward move.
