GBP/USD edges higher on subdued USD demand, remains below mid-1.2700s ahead of UK GDP

• GBP/USD is regaining positive traction after the previous day’s post-US CPI decline.
• Dovish Fed expectations and a positive risk tone weigh on the USD and provide support.
• Traders are now looking to the UK GDP print for a boost ahead of US macro data.

The GBP/USD pair is pulling some buyback during Thursday’s Asian session and reversing some of the previous day’s post-US CPI pullback slide from the vicinity of the monthly peak. Spot prices are currently trading around the 1.2735-1.2740 region, up less than 0.10% on the day, as traders now look to the release of the UK third quarter GDP advance print for a new impulse.

Consensus estimates suggest the UK economy grew by 0.6% in the April-June period, slightly less than the 0.7% increase in the previous quarter. Meanwhile, annualized UK GDP growth is expected to come in at 0.9%, compared to 0.3% in the first quarter. Against the backdrop of a surprising drop in the UK unemployment rate, even a stronger GDP print will signal a strengthening economy. This could complicate the Bank of England’s (BoE) plans to cut interest rates and give the British pound (GBP) a good boost.

Apart from that, investors will follow cues from US macro data on Thursday – monthly retail sales, initial weekly jobless claims, the Empire State Manufacturing index and the Philly Fed Manufacturing index. The data could influence USD price dynamics and provide a significant boost to the GBP/USD pair. Ahead of key data, bets on an imminent start to the Federal Reserve’s (Fed) rate-cutting cycle, supported by data indicating that inflation is on a downward trend, are weighing on the USD and providing support to the currency pair.

The US Bureau of Labor Statistics (BLS) reported on Wednesday that the US CPI rose modestly by 0.2% in July after falling 0.1% in the previous month. Meanwhile, annual CPI growth slowed slightly and fell below 3 percent for the first time in nearly three and a half years, suggesting continued progress toward the Fed’s inflation targets. Investors, however, reduced expectations for more aggressive policy easing by the Fed, which, along with geopolitical risks, could help limit downside for the dollar and keep a lid on the GBP/USD pair.