• GBP/USD forecast remains neutral to bearish after another downbeat data.
• Dovish BoE expectations could push for a rate cut sooner than expected.
• Markets await US and UK PMIs to gauge activity momentum.

The GBP/USD saw a dip from its daily highs near 1.3100 after another weak UK retail sales report, which further deepened concerns regarding softening domestic demand. This increased the odds of a more dovish Bank of England. However, the price pared the retail sales-led losses, hovering near 1.3095 at the time of writing. Despite this, the pound appears fragile as traders reassess the UK’s macroeconomic outlook.

The ONS data showed retail sales declining 1.1% MoM in October, well below the expected flat reading. September’s reading was revised to 0.7%, which gave some life to the pound after a fall. The annual figures came in at 0.2%, missing the forecast of 1.5% and slipping below the previous 1%. A sharp decline of 3.3% in textile, clothing, and footwear sales weighed heavily on the data, reflecting pressure on discretionary spending.

The weakness arises when inflation and labor market data have already softened significantly, increasing pressure on the Bank of England to shift towards easing. Markets are slowly pricing in a more accommodative policy path, and Friday’s data further supports this narrative that rate cuts may come sooner than expected.

On the fiscal front, the UK’s Autumn Budget, scheduled for November 26, is expected to include an increase in income tax to close the £22 billion budgetary gap. With faltering consumer demand, tighter fiscal measures could further weigh on growth prospects, limiting the pound’s ability to post a meaningful recovery.

Across the Atlantic, the US dollar remains broadly supported, as the dollar index stays comfortably above 100.00, approaching a five-month high. Traders have scaled back their bets on December rate cuts, with the CME FedWatch Tool showing a 35% probability, down from 70% last week. Fed officials warned that inflation remains high, dampening expectations for a potential easing. The October meeting minutes also showed officials leaning towards steady policy, supporting the US dollar.
 

GBP/USD Key Data Ahead

Both the UK and the US will release PMI data later on Friday, which could offer fresh insight into private sector momentum. Activity is expected to slow in both economies. The direction of GBP/USD will likely hinge on which side shows a sharper loss of momentum.
 

GBP/USD Technical Forecast: Gains Capped by 1.3100
 

(Click on image to enlarge)

GBP/USD 4-hour chart
 

The GBP/USD finds mild support below the mid-1.3000 level, climbing back to the broken demand zone near 1.3100, which acts as resistance. The same level coincides with the 20-period MA, making it a tough nut to crack. Finding acceptance above the level could gain buying traction, leading to the 1.3200 area.

On the other hand, staying below the 1.3100 mark will maintain selling pressure, aiming to pounce on the 1.3000 level ahead of 1.2950. The RSI is gradually rising, showing support but still below 50.0, indicating that bulls still require more energy for a reversal.

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