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  • Renewed USD selling bias assisted GBP/USD to regain positive traction on Friday.
  • Dovish Fed expectations, sliding US bond yields continued to undermine the USD.
  • Investors look forward to the US Retail Sales data for a fresh directional impetus.

The GBP/USD pair traded with a positive bias through the first half of the European session, albeit lacked any follow-through buying. The pair was last seen hovering around the 1.4070-65 region, up over 0.10% for the day.

The pair regained positive traction on Friday and built on the overnight bounce from the key 1.4000 psychological mark amid the emergence of some fresh selling around the US dollar. Despite signs of rising inflation in the US, the Fed’s stubbornly dovish stance failed to assist the USD to capitalize on this week’s solid rebound from the lowest level since February 25.

The Fed Vice Chair Richard Clarida said on Wednesday that weak job growth and strong inflation in April had not changed the central bank’s plan to maintain a loose monetary policy. Adding to this, the Fed Governor Christopher Waller said on Thursday that the Fed would not raise rates until it sees inflation above target for a long time or excessively high inflation.

Investors now seem convinced that the incoming positive economic data is unlikely to prompt an immediate shift in the Fed’s stubbornly dovish stance. This was seen as a key factor that continued acting as a headwind for the USD. Apart from this, a fresh leg up in the equity markets further dented the greenback’s relative safe-haven status.

On the other hand, the British pound remained well supported by the optimistic outlook for the UK economic recovery from the pandemic. The combination of factors extended some support to the GBP/USD pair, though the uptick lacked bullish conviction. Market participants now seemed to wait for fresh clues from Friday’s release of the US Retail Sales figures.

The data will be closely scrutinized for guidance on whether the upward pressure on prices will persist and influence the Fed rate expectations. This, along with the US bond yields, will play a key role in driving the USD in the near term and provide a fresh directional impetus to the GBP/USD pair.

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