GBP/USD drifts higher above 1.3300 on softer US Dollar, upbeat UK GDP data
- GBP/USD attracts some buyers to near 1.3310 in Friday’s Asian session.
- US PPI unexpectedly fell in April.
- Better-than-expected UK GDP data diminishes hopes of aggressive monetary policy easing by the BoE.
The GBP/USD pair edges higher to around 1.3310 during the Asian trading hours on Friday. The Greenback weakens against the Pound Sterling (GBP) as downside surprises in the US economic data this week raise bets of more Federal Reserve (Fed) rate cuts this year. Traders will keep an eye on the preliminary University of Michigan Consumer Sentiment Index, along with the US Building Permits, Housing Starts, which are due later on Friday.
US producer prices unexpectedly declined in April as the cost of services fell by the most since 2009. The Bureau of Labor Statistics on Thursday revealed that the US Producer Price Index (PPI) rose 2.4% YoY in April versus 2.7% prior. This figure came in weaker than the market expectation of 2.5%. Additionally, the US Initial Jobless Claims for the week ending May 10 came in at 229K, compared to the previous week of 229K (revised from 228K). This reading matched initial estimates.
Swap markets have priced in the Fed’s first 25 basis points (bps) rate cut for the September meeting, and they expect two additional rate reductions towards the end of the year. Some analysts believe policymakers could wait until December.
The upbeat UK Gross Domestic Product (GDP) data indicated strong economic health in the UK, which dampens hopes of aggressive monetary policy easing by the Bank of England (BoE). This, in turn, provides some support to the GBP against the USD. The Office for National Statistics reported on Thursday that UK economy showed strong growth in the first quarter of 2025, rising by 0.7% QoQ. The figure came in better than the 0.6% expected.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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