Pound Pulls Back as US Economic Clouds Loom
Pound Sterling Retreats as US Dollar Rebounds
The Pound Sterling (GBP) experienced a slight pullback against the US Dollar (USD) on Tuesday, trading near 1.3550 after hitting a three-year high of around 1.3600 the previous day. This retracement comes as the US Dollar recovered, though its outlook remains uncertain due to investor anxiety about the potential impact of President Trump’s trade policies on the US economy.
UK Economic Data Fuels Confidence in Moderate BoE Policy
The Pound’s strength against most other major currencies is attributed to traders’ growing confidence that the Bank of England (BoE) will adopt a more moderate approach to monetary easing than initially anticipated. This optimism stems from recent robust UK economic data, including:
- A 0.7% growth in the first quarter of 2023, according to the Office for National Statistics (ONS).
- A faster-than-expected acceleration of the Consumer Price Index (CPI) to 3.5% year-on-year.
- A strong expansion of 1.2% in retail sales for April.
Despite these positive indicators, BoE Chief Economist Huw Pill, who voted against a rate cut in the recent policy meeting, remains cautious. Pill emphasized that the pace of quarter-to-quarter rate cuts may be too rapid given the inflation outlook and the balance of risks to price stability.
US Economic Uncertainty Persists
The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, rose near 99.35 after finding support near its monthly low of 98.70. Federal Reserve officials, including Minneapolis Fed President Neel Kashkari, have expressed concerns about stagflation risks stemming from President Trump’s economic policies. Kashkari highlighted the elevated uncertainty surrounding tariffs and their impact on prices and economic activity.
Adding to the uncertainty is the ongoing negotiation process regarding trade deals between the United States and its trading partners, including Japan, China, and the European Union.
Looking Ahead
Investors are awaiting the release of US Durable Goods Orders data for April, which is expected to provide further insight into the state of the US economy. Meanwhile, the GBP/USD pair remains in a bullish trend, with its near-term outlook suggesting further potential upside.
