Sterling Stalls at Levels Left by US Data

Sterling drifted lower against the dollar in early European trading on Wednesday, showing weakness ahead of US data releases. After US economic data was published at 20:30 Beijing time, the pair quickly gave back nearly 50 pips within two hours, ultimately closing below the 1.3600 handle, with a daily decline of about 0.4%, retreating roughly 55 pips from the intraday high of 1.3650. At the time of writing, GBP/USD was trading near 1.35963, still unable to reclaim the 1.3600 round figure.

**US Data Disrupts Rate Hike Expectations**

The US economic data released that day became the key variable driving the currency market. Market reports indicated that recent weak performance in key indicators such as US retail sales has significantly dampened bets on further Federal Reserve rate hikes. According to the CME FedWatch tool, as of after last Friday's data release, market expectations for a September Fed rate hike stood at only about 7 basis points, while expectations for cumulative 50 basis points of hikes next year had also fallen sharply to around 35 basis points. Although the overall weak dollar pattern has not fundamentally changed, short-term volatility following the data release continued to weigh on sterling.

**UK Fundamentals Lack Support**

Domestic UK data also failed to provide upward momentum for sterling. Data previously released by the UK Office for National Statistics showed that UK retail sales fell 0.5% month-on-month in July, in line with market expectations, but reversing the 0.7% growth seen in June; on an annual basis, sales grew 1.6%, well below June's 3.8% and the market expectation of 2.2%. Core retail sales, excluding fuel, fell even more sharply, indicating that consumer momentum is weakening across the board. This backdrop limited sterling's scope to push higher during dollar pullbacks.

**Short-Term Movement Constrained by Technical Levels**

Market analysts noted that GBP/USD is currently seesawing around 1.3600, with this round figure constituting short-term psychological resistance. In the absence of new catalysts, the pair may continue to consolidate within the current range, awaiting clearer signals on the policy paths of the US and UK central banks. On the dollar side, the US Treasury's plan to increase its buyback of long-term securities exerts structural pressure on the dollar, but in the short term, market focus remains on the impact of economic data on rate hike expectations.