- GBP/USD is poised to gain as the US dollar weakens following Moody’s downgrade of the US credit rating.
- Federal Reserve officials have expressed partial disapproval of recent changes to US trade policy, citing concerns over fluctuating consumer and business confidence.
- Pound Sterling is benefiting from unexpectedly high UK inflation data released on Wednesday.
GBP/USD is expected to rise for the fourth day in a row, trading around 1.3430 during the Asian session on Thursday. This uptick in the pair is largely due to a weaker US dollar, which has been struggling since Moody’s downgraded the US credit rating, reminiscent of a similar downgrade by Standard & Poor’s back in 2011.
Moody’s has forecasted that federal debt in the US could soar to about 134% of GDP by 2035, up from 98% in 2023, with the fiscal deficit anticipated to approach 9% of GDP. This downturn is linked to rising debt service costs, growing qualification programs, and decreasing tax revenues.
On Monday, Cleveland President Beth Hammack and San Francisco officials voiced their worries about the US economy during a panel at the Federal Reserve Bank of Atlanta. Despite some key economic indicators appearing robust, both highlighted a drop in confidence among consumers and businesses, critiquing the shifts in perspectives regarding US trade policy.
On Wednesday, the Pound Sterling (GBP) continued its upward trend following the release of impressive UK Consumer Price Index (CPI) data for April. The UK National Bureau of Statistics reported the CPI rose 3.5% year-on-year, surpassing estimates of 3.3% and far exceeding the 2.6% forecast for March. This marks the highest inflation level since November 2023. Meanwhile, month-on-month inflation rates also increased significantly by 1.2%, higher than the estimated 1.1% and previous figure of 0.3%.
This unexpectedly strong UK data indicates rising inflationary pressures, which could deter the Bank of England (BOE) from pursuing its current expansionary monetary policy. Traders should also keep an eye on the upcoming S&P Global Purchase Manager Index (PMI) data, set for release on Thursday.
Economic indicators
S&P Global Composite PMI
The Combined Purchase Manager Index (PMI) is released monthly and serves as a critical indicator of private business activity across the UK’s manufacturing and services sectors. This data comes from surveys of senior executives, with responses weighted according to company size and its impact on total output. The index ranges from 0 to 100, where readings above 50 indicate economic expansion, which would suggest a bullish outlook for GBP. Conversely, readings below 50 signal contraction, typically viewed as bearish for GBP.
Next release:
May 22, 2025 08:30 (PREL)
Frequency:
monthly
Consensus:
49.3
Previous:
48.5
