- The Pound Sterling gains against its major peers on Thursday after the release of better-than-expected UK GDP data.
- Manufacturing and Industrial Production declined at a faster pace on a monthly basis in March.
- Investors await Fed Powell’s speech for fresh interest rate guidance.
The Pound Sterling (GBP) attracts bids against its peers in European trading hours on Thursday following the release of the United Kingdom (UK) Gross Domestic Product (GDP) data. The Office for National Statistics (ONS) reported that the economy grew at a robust pace of 0.7% in the January-March period, compared to the estimates of 0.6%. The economy barely expanded in the last quarter of 2024.
Year-on-year, the UK’s preliminary GDP growth has reached 1.3% in the first quarter, slightly higher than expectations of 1.2% but slower than the prior release of 1.5%. In March, the UK economy expanded by 0.2%, while economists anticipated a flat performance after a 0.5% growth in February.
Higher UK GDP growth reflects a strong economic health, which diminishes hopes of interest rate cuts by the Bank of England (BoE) and bodes well for the Pound Sterling.
On Wednesday, BoE Monetary Policy Committee (MPC) member Catherine Mann commented in an interview with CNBC that the monetary policy should be kept at their current levels due to upside risks to inflation and solid labor market conditions, Reuters reported. Mann stated that the labor market is strong despite the employment data for the three-month ending in March showing slower job growth on Tuesday. “The first observation is that the labour market has been more resilient. Now, yes, we’ve had some prints that are indicative of a slowing labour market, but it is not a non-linear adjustment,” Mann said.
Meanwhile, the UK Manufacturing and Industrial Production data for March has come in weaker than expected. Month-on-month Manufacturing and Industrial Production data declined by 0.8% and 0.7%, respectively, while they both were expected to contract by 0.5%.
Daily digest market movers: Pound Sterling outperforms US Dollar ahead of Fed Powell’s speech
- The Pound Sterling jumps to near 1.3300 against the US Dollar in European trading hours. The GBP/USD pair gains as the US Dollar trades lower ahead of the Federal Reserve (Fed) Chair Jerome Powell’s speech and the US economic data in the North American session. Investors will pay close attention to Powell’s speech to get cues about any change in the Fed’s stance on the monetary policy outlook after the release of the softer-than-expected Consumer Price Index (CPI) data for April and a 90-day trade truce between the US and China.
- On Wednesday, Fed Vice Chair Philip Jefferson stated in his prepared remarks at a New York Fed event that current policy is “moderately restrictive,” adding that it is “well-positioned” amid elevated uncertainty on how new economic policies by US President Donald Trump will shape the economic outlook and drive inflation.
- Jefferson cheered the latest softer CPI report but warned of uncertainty around the future path of inflation in the wake of tariffs imposed by Washington. “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,” he said.
- According to the CME FedWatch tool, the Fed is unlikely to reduce interest rates anytime before the September policy meeting. The tool also suggests that the central bank would cut borrowing rates two times this year.
- On the economic data front, the Producer Price Index (PPI) report for April is expected to show that US business owners raised prices of goods and services at a moderate pace. The US headline PPI is estimated to have grown by 2.5% year-on-year, slower than the March reading of 2.7%. In the same period, the core PPI – which excludes volatile food and energy prices – is expected to have risen at a slower pace of 3.1% compared to the prior release of 3.3%. Meanwhile, the Retail Sales data, a key measure of consumer spending, is expected to stay flat in April compared to the robust increase of 1.5% in March.
- On Monday, the US and China averted the trade war for 90 days after both agreed to lower tariffs by 115% and expressed confidence of reaching a deal soon.
Technical Analysis: Pound Sterling rises to near 1.3300
The Pound Sterling climbs to near 1.3300 against the US Dollar on Thursday. The GBP/USD pair holds above the 20-day Exponential Moving Average (EMA), which trades around 1.3256, suggesting that the near-term trend is bullish.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range. A fresh bullish momentum would appear if the RSI breaks above 60.00.
On the upside, the three-year high of 1.3445 will be a key hurdle for the pair. Looking down, the psychological level of 1.3000 will act as a major support area.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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