GBP/USD rises to near 1.3450 ahead of UK PMI data

• GBP/USD strengthens as the US Dollar continues to weaken on Moody’s downgrading of the US credit rating.
• Fed policymakers partially blamed the US trade policy change for shaky consumer and corporate confidence.
• The Pound Sterling receives support from stronger-than-expected UK inflation data released on Wednesday.

GBP/USD trades higher for the fourth successive day with trading around 1.3430 during the Asian hours on Thursday. The upside of the pair is attributed to the weaker US Dollar (USD), which continues to face challenges after Moody’s downgraded the US credit rating from Aaa to Aa1, following similar downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011.

As per Moody’s, US federal debt is expected to climb to around 134% of GDP by 2035, up from 98% in 2023, with the budget deficit expected to widen to nearly 9% of GDP. This deterioration is attributed to rising debt-servicing costs, expanding entitlement programs, and falling tax revenues.

On Monday, Cleveland Fed President Beth Hammack and San Francisco Fed President Mary C. Daly both voiced rising concerns about the US economy during a panel event organized by the Federal Reserve Bank of Atlanta. Despite the fact that important economic indicators are still strong, both officials noted a decline in consumer and corporate confidence and partially blamed the change in opinion on US trade policies.

On Wednesday, the Pound Sterling (GBP) extended its gains on the release of the hotter-than-expected United Kingdom (UK) Consumer Price Index (CPI) data for April. The United Kingdom (UK) Office for National Statistics reported Consumer Price Index (CPI), which rose at a robust pace of 3.5% on year, compared to estimates of 3.3% and the March reading of 2.6%. This is the highest level seen since November 2023. Meanwhile, Month-on-month headline inflation rose strongly by 1.2%, compared to estimates of 1.1% and the former reading of 0.3%.

The stronger-than-expected UK data showed a surge in inflationary pressures, a major trigger that will discourage the Bank of England (BoE) from supporting an expansionary monetary policy stance further. Traders will likely observe S&P Global Purchasing Managers Index (PMI) data due on Thursday.