GBP/USD recovers few pips from over a one-week low, manages to defend 200-day SMA

• GBP/USD oscillates in a narrow band near a one-week low touched earlier this Friday.
• The dismal UK data, dovish BoE weigh on the Sterling Pound and acts as a headwind.
• A combination of factors underpins the USD, which also contributes to capping the pair.

The GBP/USD pair struggles to capitalize on its modest intraday bounce from the 1.2120 area, or over a one-week low and remains on the defensive through the early North American session. The pair, so far, has managed to defend a technically significant 200-day SMA and is currently trading around the 1.2175 region.

A combination of factors undermines the British Pound, which, along with some dip-buying around the US Dollar, acts as a headwind for the GBP/USD pair. A dovish outcome from the Bank of England meeting on Thursday, with two MPC members voting to keep interest rates unchanged, undermines the GBP, which is further pressured by the disappointing UK macro data.

The UK Office for National Statistics reported that domestic Retail Sales fell 0.4% in November and were down 5.9% YoY. Furthermore, sales excluding volatile auto and fuel dropped by 0.3% during the reported month, missing consensus estimates. The data fuels concerns that the economy has entered a prolonged recession and favours the GBP/USD bears.

The US Dollar, on the other hand, draws support from a goodish pickup in the US Treasury bond yields, bolstered by a hawkish commentary by the Federal Reserve earlier this week. In fact, the US central bank signalled that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023.

Adding to this, the risk-off impulse - as depicted by a follow-through steep decline in the equity markets - and growing recession fears drive some haven flows towards the greenback. This is seen as another factor capping gains for the GBP/USD pair. That said, some cross-driven strength stemming from an intraday pullback in the EUR/GBP cross helps limit the downside.

Nevertheless, spot prices remain on track to register modest weekly losses as traders look forward to the flash US PMI prints for December. Apart from this, the US bond yields and the broader risk sentiment will influence the USD price dynamics. This, in turn, should allow traders to grab short-term opportunities around the GBP/USD pair on the last day of the week.

Technical levels to watch