GBP/USD Consolidates Around 1.3200, Looks to US Retail Sales for Short-Term Boost

• GBP/USD traders take the sidelines ahead of this week’s FOMC/BoE policy meetings.
• Growing bets on a 50 basis point Fed rate cut are keeping USD bulls on the defensive and providing support.
• Traders are now looking to US retail sales for near-term opportunities later this Tuesday.

The GBP/USD pair is swinging in a narrow trading band just above the 1.3200 mark during the Asian session on Tuesday and is consolidating the previous day’s strong move to a one-week high. Investors are choosing to sideline ahead of key central bank event risks – the highly anticipated two-day FOMC meeting starting on Tuesday and the Bank of England’s (BoE) policy update on Thursday.

The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday, and markets are currently pricing in a more than 60% chance of a 50 basis point interest rate cut amid signs of easing inflationary pressures. This keeps US Treasury yields down to one- or two-year lows and does not help the US Dollar (USD) to make any meaningful recovery from YTD lows, which in turn is seen acting as a tailwind for the GBP/USD pair.

Sterling (GBP), on the other hand, is supported by expectations that the BdE rate cut cycle is more likely to be slower than in the United States (US). That said, investors are still betting on more BoE rate cuts, especially after data released last week indicated a slowdown in UK wage growth and a steady GDP print for the second straight month in July. This could prevent traders from placing bullish aggressive bets around the GBP/USD pair and limit upside.

Moving forward, there is no relevant economic data on market movement due out of the UK on Tuesday, leaving spot prices at the mercy of the USD. Later in the early North American session, traders will take cues from the release of US retail sales data which, along with US bond yields, will influence USD demand and provide some impetus to the GBP/ USD. However, the fundamental background mentioned above calls for some caution for aggressive traders.