GBP/USD Pair Trading Sideways Above 1.2420 Amidst Subdued USD Index Performance

In the Asian session, the GBP/USD pair is showing back-and-forth movement above 1.2420 as the US Dollar Index struggles to find direction. Despite the absence of a potential trigger, a significant volatility contraction in the USD Index is anticipated to lead to explosive moves in the future.

Market sentiment appears negative with losses registered in the S&P500 futures during the Asian session. While the 500-US stock basket futures have settled on a mildly negative note in the past two trading sessions, there has been elevated stock-specific action due to the quarterly results season.

Investors are concerned that higher interest rates from the Federal Reserve will force firms to squeeze their revenue guidance. In addition, the declining loans and advances to consumers and businesses by US banks after the banking turmoil are expected to put extreme pressure on the working capital requirements of firms.

On the Pound Sterling front, despite higher Average Hourly Earnings and double-digit headline inflation, the Bank of England is unlikely to pause the policy-tightening spell due to the synergic effect. Sticky inflation in the UK is primarily driven by rising food prices, which have hit a fresh 45-year high of 19.1% according to the Office for National Statistics.

This week, investors will be closely monitoring the UK Retail Sales (March) data, which is expected to contract by 0.5% compared to the acceleration of 1.2% reported in February. Annual Retail Sales would show a contraction of 3.1% against the 3.5% contraction shown earlier. If retail demand does contract, it would provide some relief to the BoE policymakers.