GBP/USD surges past 1.3500 to a three-year high on strong UK Retail Sales, weak US Dollar

• GBP/USD breaks above 1.3500 and trades near 1.3538, the highest level since February 2022.
• UK Retail Sales jump 1.2% MoM and 5% YoY in April, beating forecasts.
• USD weakens broadly amid renewed Trump tariff threats and fiscal worries.

The British Pound (GBP) rises sharply against the US Dollar (USD) to its highest level in three years on Friday. The pair has broadly traded on the front foot over the last five days, with GBP/USD breaking above 1.3500 to trade around 1.3538, up nearly 0.80% at the time of writing during the American session. The surge in spot prices is mainly attributed to a broad-based weak US Dollar and a stronger-than-expected United Kingdom’s (UK) Retail Sales data. 

The latest economic data released by the Office for National Statistics (ONS) showed that the Retail Sales increased by 1.2% MoM in April, sharply beating the 0.2% forecast and rebounding strongly from the downwardly revised 0.1% gain in March. On an annual basis, Retail Sales climbed 5%, accelerating from March’s 2.6% gain and well above the market consensus of 4.5%.

The upbeat Retail Sales figure portrays a resilient UK consumer base, despite the ongoing global economic uncertainty around US tariffs. On the other hand, the latest Purchasing Managers Index (PMI) figures released on Thursday presented a mixed view of the UK economy, with the United Kingdom’s (UK) S&P Global Composite PMI rising to 49.4 from 48.5 in April, indicating a slower pace of contraction in private-sector activity. The services sector returned to expansion territory, with the Services PMI increasing to 50.2 from 49.0, while manufacturing remained in contraction, as the Manufacturing PMI slipped to 45.1 from 45.4.

That said, inflation data released on Wednesday showed that headline and core Consumer Price Index(CPI) accelerated. The Headline CPI rose by 3.5% and core CPI increased by 3.8% from 3.4% in March.

Combining all the latest economic data presents a mixed but broadly resilient macro picture as price pressures remain elevated, even as growth momentum shows early signs of recovery, which could make the case for the Bank of England (BoE) to hold the interest rate unchanged at its next meeting.

"With sticky inflation and growth ticking along, it's getting harder to see interest rates falling quickly," said Neil Birrell, Chief Investment Officer at Premier Miton Investors, an asset management company.

On the other hand, the US Dollar remains subdued with the US Dollar Index (DXY) falling to near 99.00 at the time of writing as President Donald Trump reignited global trade tensions, targeting both Apple and the European Union with threats of new tariffs. Trump proposed a 50% tariff on EU imports starting June 1, citing stalled negotiations, adding to a risk-off mood already driven by US fiscal instability.