GBP/USD Bears Observe a Retest Of 1.2450 As The US Dollar Weakens On Debt Ceiling Hopes, And Focus Is On BoE's Bailey

GBP/USD remains subdued around 1.2485 in the early hours of Wednesday, after reversing from a weekly peak the day before. In doing so, the Pound Sterling justifies the market's indecision amid a halt in the US Dollar's ascent and a cautious mood preceding Governor Andrew Bailey's speech from the Bank of England (BoE).

In spite of this, the US Dollar Index (DXY) falls to 102.57 following Tuesday's positive performance as market sentiment improves in anticipation of a US default avoidance. In spite of this, the meeting between US President Joe Biden and top congressional Republican Kevin McCarthy lasted less than an hour and raised hopes for positive developments as congressional leaders stated, "A deal is possible by the end of the week."

Reuters cites S&P Global Market Intelligence data while noting a decline in the one-year US Credit Default Swap (CDS) spreads from 164 basis points (bps) to 155 basis points (bps). Spreads on five-year CDS decreased from 72 basis points on Monday to 69 basis points on Tuesday. On the same line, US Treasury bond yields continue to rise after a notable rally, while S&P500 Futures post modest gains to defy Wall Street's negative performance.

It should be noted, however, that a recent contrast between US and UK data appears to have weighed on Cable prices.

On Tuesday, the UK Claimant Count Change for April increased by 46.7K compared to -10.8K expected and 26.5K previously, while the ILO Unemployment Rate for the three months leading up to March rose to 3.9% against expectations of no change at 3.9%. In addition, the Average Earnings excluding bonus and including for the three months leading up to March were unimpressive despite exceeding expectations.

On the other hand, US Retail Sales increased 0.4% month-over-month in April, up from -0.7% in March (revised) and 0.4% expected. Moreover, Retail Sales Control Group for the aforementioned month exceeded market expectations of 0.0% and -0.4% prior with a 0.7% actual figure, while Retail Sales excluding Autos for April matched 0.4% MoM expectations surpassing the -0.5% prior. In addition, the US Industrial Production MoM for April rose to 0.5%, exceeding expectations of 0.0%.

It should be noted that BoE Chief Economist Huw Pill recently followed in the footsteps of BoE Governor Bailey in an effort to dampen dovish expectations after the "Old Lady," as the United Kingdom's central bank is colloquially known, announced a dovish rate hike last week.

Bailey of the Bank of England must reiterate his hawkish comments and refrain from citing low inflation in order to recall the pound sterling purchasers. In spite of this, the second-tier US housing data and risk catalysts will determine near-term GBP/USD movements.