Ella 
GBP/USD held firm below the 1.2400 mark for the second day in a row and attracted some buyers during Friday’s Asian session. Spot prices have now reversed some of the previous day’s losses to more than three-month lows and are currently trading around 1.2420-1.2425, up 0.10% on the day, but any meaningful recovery still appears elusive.
US Dollar (USD) bulls have opted to take profits after a recent rally to levels not seen since March 9, providing some support to GBP/USD. China’s mostly positive macro data boosted investor confidence and triggered some selling in the safe-haven dollar, amid optimism about more stimulus measures from China. In addition to this, a slight pullback in US Treasury yields further weakened the pound, although expectations that the Federal Reserve (Fed) will stick to its hawkish stance should limit any significant downside for the pound.
The U.S. central bank is widely expected to pause its interest rate hike cycle at next week’s meeting. However, traders are still pricing in the possibility of another 25 basis points rate hike in November or December. Better-than-expected U.S. economic data released on Thursday confirmed this expectation. While inflation remains subdued, the Fed should be able to keep interest rates higher for longer. At the same time, this prospect will act as a “headwind” for U.S. bond yields, favoring dollar bulls. Additionally, the reduced likelihood of a more aggressive tightening policy by the Bank of England (BOE) could limit GBP/USD movements.
The UK economy shrank by 0.5% at the fastest pace in seven months in July, the Office for National Statistics reported on Thursday, reigniting fears of a recession. This, along with signs that the UK labor market is cooling, has put pressure on the Bank of England to pause its interest rate hike cycle. Additionally, GBP/USD continued to break above and settle below the technically important 200-day simple moving average (SMA) overnight, suggesting minimal downside resistance for GBP/USD. Therefore, any subsequent rise may still be viewed as a selling opportunity and may disappear quickly.
Traders are now looking to the Bank of England’s survey of consumer inflation expectations to provide some impetus. Later in the North American morning session, US economic reports featuring preliminary readings on the Empire State Manufacturing Index and Michigan Consumer Confidence Index may influence USD price dynamics and present short-term trading opportunities for GBP/USD. Still, spot prices are set to close in the red for the second consecutive week, with the fundamental backdrop appearing firmly tilted toward bearish traders.
