The Pound Sterling shot up to almost 1.3300 vs US Dollar on Thursday, helped by positive UK GDP figures. The GBP/USD pair found some support above the 20-day Exponential Moving Average (EMA) at 1.3256. This movement has caused some analysts to predict a bullish trend in the short term. In turn, the US Dollar weakness inspired massive gains across the markets. Traders continued to look ahead to a key speech by Federal Reserve Chair Jerome Powell and release of key US economic data due in the North American session.
While strongly positive for the greenback during European trading hours, the Pound Sterling did enjoy a significant push higher towards the 1.3300 level. The increase is a major reversal compared with earlier predictions, indicating that the UK has a strengthening economic outlook. The GBP/USD move’s biggest obstacle is up at the three-year peak of 1.3445. On the downside, the psychological level of 1.3000 serves as an important support zone.
UK Economic Performance Bolsters Pound Sterling
The recent data release from the Office for National Statistics revealed that the UK’s preliminary GDP growth reached 1.3% year-on-year in the first quarter. It was certainly a positive reading that came in above estimates of 1.2%, but it was a decline from the data in the prior month of 1.5%. Cheerier news has come from March, when the British economy grew by 0.2%. This robust increase surprised economists, who projected flat growth following February’s 0.5% jump.
Higher-than-expected GDP growth reflects strong economic health in the UK, reducing the likelihood of aggressive monetary policy easing by the Bank of England (BoE). Analysts feel this is good news for the Pound Sterling relative to its US counterpart.
While some of the leading indicators remain positive, the month-on-month figures in both Manufacturing and Industrial Production were a letdown. They shrank by 0.8% and 0.7%, both worse than the anticipated -0.5% declines. These mixed results have contributed to a confusing climate for traders and analysts.
Market Reactions and Future Outlook
The GBP/USD pair’s rise coincided with a downward trend in the US Dollar, as market participants braced for Powell’s upcoming remarks and anticipated economic data from the US. The US headline Producer Price Index (PPI) will increase by 2.5% YoY. That’s a deceleration from March’s increase of 2.7%. Such developments would certainly have negative ramifications for the GBP/USD exchange rate.
The GBP/USD pair 14-day Relative Strength Index (RSI) is decidedly in the 40.00-60.00 neutral range. What this means is that the currency pair is continuing to appreciate in strength, but it’s not quite overbought yet. Traders are already eyeing these technical levels as they look to play the next big move.
“If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation,” – Jefferson
Market analysts remain cautious. Going forward, they understand that the Pound Sterling understandably has had swift advances against his important peers, most importantly the New Zealand Dollar. They are acutely aware of how important future economic data releases are in driving trends to come.
Impact of Economic Policy on Currency Strength
The resilience of the UK’s labor market has played a crucial role in supporting the Pound Sterling’s performance. As our colleague Catherine Mann recently noted, the labor market might just be one of the greatest miracles of resilience. Although these indicators point to a labor market that’s slowing down, this pivot is not an abrupt transition.
This negativity is a reflection of just how much the labor market is decelerating. It does not mean an impending crash of the economy or the US dollar. Depending on how these dynamics with monetary policy translate to actual inflation will be equally as important in dictating the Pound’s path going forward.