The Bank of England (BoE) Governor Mark Carney said on May 13 that the bank trimmed its gross domestic product (GDP) forecast for 2015 to 2.5%, from 2.9%, blaming low inflation and poor productivity as some of the catalysts behind the reduction. The BoE also lowered their 2016 GDP forecast from 2.9% to 2.6%. Last week, BoE policymakers voted 9-0 to keep interest rates on hold at 0.5%.

More signs of economic weakness from the U.K. emerged on Tuesday after the Office for National Statistics (ONS) said that the main measure of U.K. inflation turned negative in April for the first time on record, with the rate falling to -0.1%. Economists expect the fall in prices to be temporary, but say it should increase consumer spending. The latest inflation figures show that transport costs were 2.8% lower in April than the same time a year ago, while food was 3.0% cheaper.

U.K. retail sales fared a little bit better as they rose 1.2% in April, according to the ONS, the strongest increase since November, beating the analysts' forecast of 0.4%. The warm weather encouraged shoppers to stock up on summer clothes. Sales of clothing, footwear and textiles jumped 5.2% in April from March, the biggest rise for four years.

As of May 19, there are 94,119 short positions of the British Pound [CME:6B], traded on the Chicago Mercantile Exchange (CME), by asset manager/institutional and leveraged funds. This is compared to about 71,317 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. Long positions have increased about 15,637 contracts from last week where British Pound contracts are traded in units of 62,500 British pounds.

From our technical viewpoint, the GBP/USD broke out from the symmetrical triangle in March and is now trading in the narrow range between the 1.55 and 1.58 dollars per-British pound levels. The U.S. dollar index got a big lift last Friday as Federal Reserve Chairwoman Janet Yellen, in her speech in Providence, R.I. appeared to be confident that the central bank is on track to raise interest rates this year. Therefore, it is likely possible that the GBP/USD could pull back further to retest the 1.53 dollars per-British pound, or 23.6% Fibonacci retracement level.

It will be a reality check on May 29 when the second estimate of the first-quarter GDP will be released. The Fed’s Yellen expects the U.S. economy to strengthen while Wall Street economists forecast the first-quarter GDP second reading to contract 0.9%, compared to the initial reading of 0.2% growth. If the number comes in worse than expected, we could see a bounce in the British pound.