GBP/USD retreats below 1.3500 as US GDP growth outpaces expectations

• The GBP/USD slips below the 1.3500 level after the US GDP confirmed solid 3.3% growth in Q2.
• The Greenback remains under pressure amid dovish Fed expectations.
• Traders eye Friday's July PCE inflation report for fresh monetary policy direction.

The British Pound (GBP) eases against the US Dollar (USD) on Thursday, trimming all of its earlier gains after climbing to a session high of 1.3526. At the time of writing, GBP/USD is trading just below the 1.3500 psychological level, with subdued price action reflecting investor caution following a series of mixed US economic data releases.

The latest figures from the Bureau of Economic Analysis showed that the second estimate of US Gross Domestic Product (GDP) confirmed a 3.3% annualized expansion in Q2, stronger than the 3.1% expected and above the 3.0% previously recorded. Labor market conditions also pointed to resilience, with Initial Jobless Claims falling to 229,000, slightly better than forecast and down from a revised 234,000.

At the same time, inflation readings moderated. The preliminary reading of the Core Personal Consumption Expenditures (PCE) Price Index rose 2.5% QoQ, undershooting the 2.6% forecast, while the headline PCE Price Index and GDP Price Index both printed at 2.0%, compared with 2.1% previously. The mix of firmer growth and easing inflation provided little traction for the Dollar, leaving the Greenback under broad pressure.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major peers, is attempting to recover the 98.00 level after dipping to an intraday low of 97.84 earlier in the session. Market focus now shifts to Friday's release of the July PCE inflation report, which is expected to provide a clearer signal on the Federal Reserve's (Fed) monetary policy outlook.