The Pound Sterling (GBP) demonstrated strength against most major currencies on Tuesday. This was due to positive economic data from the UK and reduced expectations of aggressive monetary easing by the Bank of England (BoE). However, it slightly corrected to 1.3550 against the US Dollar (USD) amid uncertainty over the US economic outlook.
Traders have been reducing their bets on a significant dovish shift from the BoE. This is influenced by robust economic indicators from the UK. Recent data showed that the UK’s Q1 Gross Domestic Product (GDP) growth was a solid 0.7%.
The headline Consumer Price Index (CPI) surged to 3.5% year-on-year. Retail Sales for April rose strongly by 1.2% month-on-month. At its policy meeting earlier this month, the BoE cut borrowing rates by 25 basis points (bps) to 4.25%.
They adopted a “gradual and careful” approach to rate cuts. Despite a 7-2 vote split, BoE Chief Economist Huw Pill argued against further immediate cuts. He emphasized the need for caution given the inflation outlook.
“The quarterly pace of 25 bps cuts seen since last summer is too rapid given the balance of risks to price stability we face,” Pill said. During Tuesday’s European session, the GBP/USD pair retreated to 1.3550 from a three-year high of 1.3600 posted the previous day.
Positive UK data boosts pound
The US Dollar rebounded, though its outlook remains uncertain amid ongoing trade negotiations and new economic policies under President Donald Trump. The US Dollar Index (DXY), which tracks the USD against six major currencies, rose to near 99.35 after bottoming at 98.70. Minneapolis Federal Reserve President Neel Kashkari highlighted concerns about stagflation.
This is a combination of stagnant economic growth and rising inflation. He expressed caution in adjusting monetary policy amidst uncertainties related to tariffs and trade deals. “Uncertainty is something that is top of the mind for the Fed and US businesses,” Kashkari stated.
He warned of the potentially stagflationary impact of tariffs. On the economic front, investors are awaiting the US Durable Goods Orders data for April. It is expected to show a decline of 7.9% following a 9.2% rise in March.
The near-term trend of the GBP/USD pair remains bullish. All short-to-long term Exponential Moving Averages (EMAs) are sloping higher. The 14-day Relative Strength Index (RSI) near 70.00 indicates strong bullish momentum.
Key resistance is seen at the January 13, 2022 high of 1.3750. Support lies at the April 28 high of 1.3445.