GBP/USD improves to near 1.2740 on subdued US Dollar, focus on UK housing data

• GBP/USD retraces its recent losses as the US Dollar seems to lose ground.
• The Greenback failed to stay in the positive territory on downbeat US bond yields.
• Softer US data reinforces the bets on the dovish Fed outlook on interest rate trajectory.
• Pound Sterling cheers on the expectation of the BoE to maintain a restrictive stance.

GBP/USD attempts to recover its losses registered in the previous session. The GBP/USD pair trades slightly higher around 1.2740 during the Asian hours on Friday. The US Dollar (USD) attempted to halt its losing streak before the end of the year 2023, but it appears to be struggling to stay in positive territory. The US Dollar Index (DXY) trades lower than 101.13 at the time of writing.

United States (US) Treasury yields experiences a downward movement after posting gains in Thursday’s session. This development is notable as it weighs on the Greenback, with investors predicting reduced interest rates soon. The 2-year and 10-year yields closed higher at 4.28% and 3.84%, respectively, in the previous session. However, on Friday, both yields are standing lower at 4.27% and 3.83%, respectively, by the press time.

Additionally, the downbeat US economic data, including a higher-than-expected increase in Initial Jobless Claims and flat Pending Home Sales for November, may have limited the advance of the Greenback. This data reinforces the chances for the US Federal Reserve (Fed) to take a more accommodative stance in its monetary policy decisions in the upcoming meetings.

US Initial Jobless Claims for the week ending on December 23 rose to 218K, exceeding the market expectation of 210K. Pending Home Sales (MoM) came in flat at 0.0% in November against the 1.0% expectations.

The Chicago Purchasing Managers’ Index for December will be an additional data point to watch on Friday, providing further insights into the economic conditions in the Chicago area and contributing to the overall assessment of the US economy.

The Pound Sterling (GBP) seems to have recovered, driven by market expectations that the Bank of England (BoE) may maintain a restrictive monetary policy stance. In the United Kingdom (UK), inflation is currently the highest among other Group of Seven economies.

However, the decision-making process for BoE policymakers is challenging, as they face the dilemma of addressing high price pressures while navigating the risk of the economy entering a technical recession due to deteriorating demand in the domestic market. These complex economic dynamics contribute to the volatility and uncertainty in the currency markets, influencing the performance of the British Pound (GBP).

Market participants will likely watch seasonally adjusted UK Nationwide Housing Prices data for December. The month-over-month report is expected to show a flat reading of 0.0% compared to November’s 0.2% increase. While yearly figures could print a 1.4% decline compared to the previous decline of 2.0%.