GBP/USD Edges Higher After Strong UK Growth, Tepid US Retail Sales – ForexNews.PRO

The British pound is demonstrating strength on Thursday, with GBP/USD currently trading at 1.3287 in the European session, reflecting a 0.23% increase for the day.

Pound Sterling Bolstered by UK GDP Data

The UK economy experienced a 0.7% quarterly expansion in the first quarter, a figure slightly surpassing the anticipated 0.6% but falling short of the previous quarter’s 1% growth. This represents the most robust expansion in the last three quarters, fueled by heightened activity in both the services and manufacturing sectors. Year-on-year growth reached 1.3% in Q1, exceeding market forecasts of 1.2% but lower than the 1.5% recorded in Q4 2024.

Last week, the Bank of England reduced its key interest rate from 4.5% to 4.25% and hinted at further reductions. However, the stronger-than-anticipated GDP figures have tempered market expectations regarding future rate cuts.

Global trade is currently facing significant uncertainty due to US tariffs. While President Trump’s unexpected trade agreement with the UK, along with the temporary tariff reduction agreement with China, are positive developments, they also underscore his unpredictable nature. This unpredictability poses challenges for the BoE in accurately forecasting growth and inflation, as the tariff situation remains a substantial unknown.

US Economic Data Shows Mixed Signals

April saw a modest 0.1% monthly increase in US retail sales, which is significantly lower than March’s revised 1.7% increase but slightly above market expectations of 0%. Inflation data also presented a mixed picture, with Producer Price Inflation declining by 0.5% in April, a decrease from March’s revised 0% and below the projected 0.2%.

The Federal Reserve is widely expected to maintain current interest rates at the upcoming June 30 meeting. According to CME’s FedWatch, there is a 36% probability of a rate cut in July and a 50% chance in September. Fed Chair Powell is taking a cautious approach, awaiting greater clarity on US trade policies.