Pound sterling GBP outperforms the euro and the dollar amid stronger economic data

The Great British Pound (GBP) has outperformed other leading currencies in February amid positive economic data. The currency rallied by 1.8% against the U.S. dollar this month, making February its best-performing month since September of last year.

The pound has strengthened in the last few weeks, rebounding against other major currencies. The recent GBP rebound has caused the currency to outperform the U.S. dollar and the Euro. 

Pound rallies by 1.8% against the U.S. dollar

In February, the pound rallied by 1.8% against the U.S. dollar despite slightly dipping on 27th February. This week, the currency rose to a high of $1.2715 after a slight dip to $1.21 in January.

The rally is largely credited to strong UK economic data, including inflation sustaining above target and better-than-expected retail sales. The United Kingdom’s GDP data has also reinforced investor confidence in market participants who are concerned about the UK’s growth.

Kamal Sharma, an FX strategist at Bank of America, commented on the developments, citing that people were concerned about possible stagflation, but the recent data conflicts with that narrative. Sharma emphasized that there seem to be some good forces in play, likely referring to a stronger economy.

Brad Bechtel, global head of FX at Jefferies, also commented on GBP’s recent upsurge. The official explained that the pound rally could have been fueled by cooling Trump trades initiated by investors looking to unwind bets that Trump’s administration would spark increased inflation in the U.S. 

According to Bechtel, many had expected rising inflation after Trump was elected as the U.S. president, which would push up the dollar and other assets. Bechtel also credited the pound’s rally against the dollar to a surprisingly positive economic outlook in the United Kingdom.

UK inflation rises sharply, prompting a more dovish outlook from BoE

Breaking: UK CPI Inflation Hits 3% YoY in January, Above Expectations

➡️UK #CPI rises to 3% in January, surpassing the 2.8% forecast.
➡️Monthly inflation drops to -0.1%, better than the -0.3% expected.
➡️#GBPUSD remains above 1.2600 post-data release.#XAUUSD #NASDAQ #crudeoil pic.twitter.com/klbouQWByS

— Chandrika (@Fx_Chandrika) February 19, 2025

In January, inflation in the U.K. rose sharply, taking out a ten-month high of 3%. The rising inflation numbers implied slower interest rate cuts from the UK’s central bank (Bank of England). The more dovish outlook portrayed by the Bank of England helped support GBP’s strength.

The pound sterling also outperformed the euro. So far this month, it has surged by 1% against the European currency. Francesco Pesole, an FX strategist at ING, expressed his thoughts on the strength of the rising GBP. Pesole said the “hotter” inflation data and a perception that the UK had lower exposure to the US tariff threats are some of the factors that have lifted the British pound. 

But he emphasized that a calm equilibrium market is necessary for the pound’s strengthening to continue, alluding to recent sell-offs in UK government bonds that have also weighed on the currency. 

Other economists cautioned that it was too early to classify the UK’s economy as improving due to its flagging tendency. In January, public finances fell to a smaller-than-expected surplus. Head of economic research at St James’ Place, Hetal Mehta said that things are a bit better on the back of “very weak” expectations.

The British pound’s recent performance coincides with recent developments of the U.S. working on trade deals with the UK. According to the Financial Times, U.S. President Donald Trump said he is working on a trade deal with the UK and suggested that Britain could escape tariffs if the countries secure one. 

During a joint press conference at the White House on Thursday, Donald Trump said his U.K. counterpart Sir Keir Starmer was “working very hard” to convince him not to impose tariffs on Britain, but he thought the levies could be avoided.

“I’ll tell you that he earned whatever the hell they pay him over there, but he tried,” Trump said of Starmer, terming him as a “very tough negotiator”.  Trump also said that the two countries could end up with a real trade deal where tariffs will not be necessary.

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