The Pound Sterling faces a sharp selling pressure against its major peers as the UK economy declined at a faster-than-projected pace in April.
Slower labor demand and economic contraction might encourage BoE officials to consider more interest rate cuts.
US President Donald Trump confirms the import of rare earth from China.
The Pound Sterling (GBP) falls sharply against its major peers on Thursday as the United Kingdom (UK) Office for National Statistics (ONS) reported that the economy shrank at a faster-than-expected pace in April.
According to the report, the UK Gross Domestic Product (GDP) declined by 0.3% month-over-month in April, faster than expectations of 0.1%. In March, the GDP growth rate was 0.2%. This higher-than-projected decline in the country’s economy is expected to force the Bank of England (BoE) officials to reassess their “gradual and careful” monetary expansion guidance, which they delivered in May after slashing interest rates by 25 basis points (bps) to 4.25%.
Meanwhile, the factory data has also declined at a faster-than-projected pace in April. On month, the Industrial and Manufacturing Production contracted by 0.6% and 0.9%, respectively.
On Tuesday, the employment data for the three months ending in April also indicated cracks in the labor market. UK business owners laid off a significant number of employees and recruited fewer workers than seen in the quarter ending in March on the back of an increase in employers’ contributions to social security schemes.
Signs of economic shockwaves and softer labor demand are expected to boost market expectations that the BoE will cut interest rates more times than projected last week.
Going forward, the major trigger for the Pound Sterling will be the UK Consumer Price Index (CPI) data for May and the BoE’s monetary policy meeting, both scheduled for next week.
Daily digest market movers: Pound Sterling falls back against US Dollar
The Pound Sterling gives back Asian session gains against the US Dollar (US), sliding to near 1.3560 during European trading hours on Thursday as the UK GDP data for April showed an economic contraction. However, the pair trades slightly higher on the day, around 1.3555 at the time of writing.
Meanwhile, the US Dollar is also underperforming against its peers on Thursday due to uncertainty surrounding the tariff policy.
On Wednesday, US President Trump threatened to send letters to those trading partners from whom Washington has not received any proposal or those who are not negotiating in good faith, stating trade terms and tariff rates.
“At a certain point, we’re just going to send letters out. And I think you understand that, saying this is the deal, you can take it or you can leave it,” Trump said to reporters on Wednesday at Kennedy Centre and added, “We’re going to be sending letters out in a week and a half to two weeks, telling them what the deal is.”
On the US-China trade front, Trump expressed confidence through a post on Truth.Social that Beijing has agreed to supply rare earths to Washington after the two-day meeting in London earlier this week. “Full magnets, and any necessary rare earths, will be supplied, up front, by China. Likewise, we will provide to China what was agreed to, including Chinese students using our colleges and universities (which has always been good with me!)," Trump wrote. He further added, "We are getting a total of 55% tariffs, China is getting 10%. Relationship is excellent!”
On the economic calendar front, investors await the US Producer Price Index (PPI) data for May, which will be published at 12:30 GMT. The PPI report is expected to show that the producer inflation grew at a faster pace.
Technical Analysis: Pound Sterling stays above 20-day EMA
The Pound Sterling struggles to revisit the over three-year high of 1.3617 against the US Dollar, which was touched on June 5. The GBP/USD pair continues to hold the 20-day Exponential Moving Average (EMA) around 1.3480, suggesting that the near-term trend remains bullish.
The 14-day Relative Strength Index (RSI) strives to break 60.00. A fresh bullish momentum would emerge if the RSI breaks decisively above that level.
On the upside, the three-year high of 1.3617 will be a key hurdle for the pair. Looking down, the May 15 low of 1.3258 will act as a key support zone.
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