- Pound Sterling is likely to approach 1.3330 against the US dollar, as the dollar weakens following disappointing US economic data.
- The Federal Reserve is expected to keep interest rates steady at its next two meetings.
- Investors are looking forward to next week’s UK CPI data for hints about the Bank of England’s monetary policy.
Pound Sterling (GBP) is set to perform well against its main counterparts this Friday, aside from the US dollar, following a significant increase the day before. The UK currency gained substantial traction on Thursday after the release of both monthly and quarterly Gross Domestic Product (GDP) figures.
Strong growth in GDP provides the Bank of England (BOE) with the option to maintain current interest rates if inflation remains steady or increases.
This week, BOE’s chief economist Huw Pill cautioned that inflation might outpace expectations. He pointed out that heightened inflation creates a stronger case for keeping interest rates high. Pill, along with Katherine Mann, was one of the two members of the Monetary Policy Committee (MPC) who decided not to change interest rates in last week’s meeting. The BOE reduced its main borrowing rate by 25 basis points to 4.25%.
To gain more insights into UK inflation, investors are eagerly awaiting the April Consumer Price Index (CPI) data, due for release on Wednesday. Any signs of easing inflationary pressures could bolster market speculation that the BOE may consider cutting interest rates again at its June meeting.
Daily Digest Market Mover: Pound Sterling Gains Against the US Dollar
- Pound Sterling is predicted to rise towards 1.3330 against the US Dollar (USD) during Friday’s European session, extending the upward trend seen on Thursday. GBP/USD pairs are benefiting as the US dollar remains on the back foot post data release, even if it’s softer than anticipated Producer Price Index (PPI) for April.
- The US Dollar Index (DXY), which reflects the dollar’s value against six major currencies, is trading down near 100.50.
- Recent US PPI figures revealed an unexpected drop in producer prices compared to last month, primarily due to a steep decline in the hospitality sector. The slowdown has been attributed to a significant drop in tourist travel, impacting ticket sales and hotel bookings. A report suggested that international visitors are hesitating to travel to the US, influenced by the current trade policy and immigration measures.
- Additionally, weak retail sales figures are also weighing on the US dollar. Retail sales, a key indicator of consumer spending, saw only a 0.1% increase, which is much slower than March’s 1.5% rise. It appears households may have stocked up in March ahead of anticipated tariffs. Car sales dipped by 0.1%, contrasting with a 5.5% gain in March. Durable goods only managed a modest increase of 0.3% in April, following a robust rise of 1.5% in the previous month.
- The combination of declining producer inflation and lackluster retail sales data has prompted a notable revision in US Treasury yields, which fell from a monthly high of 4.55% posted Thursday during European trading hours.
- Despite the soft economic metrics, the expectation remains that the Federal Reserve (FED) will hold interest rates steady during the upcoming two policy meetings. This reflects a lean towards managing consumer inflation expectations without adjusting borrowing rates. According to the CME FedWatch tool, the likelihood of the Fed keeping rates stable in the 4.25%-4.50% range for June and July meetings stands at 91.8% and 61.4%, respectively.
Technical Analysis: Pound Sterling Surpassing 1.3300
Pound Sterling is poised to rise above 1.3300 against the US dollar this Friday. The GBP/USD pair is trading above the 20-day exponential moving average (EMA) of around 1.3256, indicating a bullish short-term trend.
The 14-day relative strength index (RSI) fluctuates between 40.00 and 60.00. A rise above 60.00 could signal fresh bullish momentum.
On the upside, a key resistance level is the three-year high of 1.3445, while on the downside, a psychological support level is set at 1.3000.
Economic Indicators
Gross Domestic Product (QoQ)
The Office for National Statistics released GDP figures, which measure the overall value of goods and services produced in the UK over a specific period. Generally, an increase in this indicator is viewed positively for Pound Sterling (GBP), while a lower reading typically indicates a bearish trend.
