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Pound Sterling Breaks Higher as Cooling U.S. Inflation Weakens Dollar; All Eyes on UK GDP Data
Economic
Summary:
The British Pound surged toward 1.3350 against the U.S. Dollar in Wednesday trading, driven by weaker-than-expected U.S. inflation figures for April.
Buy
CLOSEDGBPUSD
End Time
1.33398
Entry Price
1.34400
TP
1.32600
SL
1.34610 -0.00181 -0.13%
798
Points
Loss
1.32600
SL
1.32600
CLOSING
1.33398
Entry Price
1.34400
TP
In a week of pivotal data and political noise, the Pound Sterling extended its rally against the U.S. Dollar on Wednesday, climbing to levels just shy of 1.3350 during the European session. The currency pair built on its Tuesday recovery, driven by a sharp retreat in the Greenback following the release of softer-than-expected U.S. Consumer Price Index (CPI) data for April. The figures have sparked fresh speculation that the Federal Reserve may be forced to consider rate cuts sooner than expected—even as official Fed guidance remains unchanged.
Headline inflation in the U.S. dropped to 2.3% on an annual basis, marking its lowest level since February 2021. This came in below expectations and fueled a broad sell-off in the dollar as traders reassessed the trajectory of Federal Reserve policy. Core inflation, which excludes volatile food and energy components, held steady at 2.8% year-over-year, meeting forecasts, but showed a notable deceleration on a monthly basis at just 0.2%. The monthly print for headline CPI also came in at 0.2%, underlining the perception that disinflation is gradually taking hold across the U.S. economy.
Despite these numbers, immediate expectations for a rate cut at the Fed’s July meeting have barely budged. According to the CME FedWatch Tool, markets continue to assign a 61.4% probability to the Fed holding its benchmark interest rate in the current 4.25%-4.50% range at the next policy meeting. While that figure is largely unchanged from levels seen before the inflation data was released, it marks a sharp rise from just 29.8% a week earlier—when the announcement of a tariff reduction agreement between the U.S. and China helped soothe market concerns about global trade and inflation.
This improvement in U.S.-China relations has complicated the policy outlook. On one hand, falling inflation suggests room for easing; on the other, improved trade prospects support growth, potentially allowing the Fed to maintain a higher-for-longer stance. Nonetheless, political pressures are intensifying, adding another layer of complexity.
Former President Donald Trump, who remains an influential voice in Republican economic circles and a likely contender for the presidency, issued a forceful call for rate cuts. Writing on Truth Social, Trump claimed that inflation was effectively dead and that the Fed had a responsibility to act. "No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done," he posted. Trump also attacked Fed Chair Jerome Powell directly, referring to him as “Too Late Powell” and warning that America is “ready to blossom” if only the central bank would ease policy.
While Trump’s commentary does not dictate Fed policy, it reinforces market expectations that pressure will mount on the central bank to respond more aggressively if inflation continues to trend downward and economic momentum fades. This backdrop has left the dollar vulnerable, and the British Pound has taken full advantage.
Market participants are now turning their focus to the United Kingdom’s preliminary Q1 GDP figures due for release on Thursday. Analysts are watching for signs that the British economy is gaining traction after a sluggish 2023. A strong reading would likely bolster the Pound further, especially as the Bank of England maintains a cautious but hawkish tone amid still-stubborn domestic inflation.
Technical Analysis
On the technical front, GBP/USD has made a decisive breakout above a short-term descending trendline, with recent price action also clearing the 50-period Exponential Moving Average (EMA50). This marks a significant shift in momentum, with bullish signals now confirmed by technical indicators. The Relative Strength Index (RSI) is moving into overbought territory, indicating the possibility of a short-term consolidation or pullback. However, the structure of the move, highlighted by a bullish engulfing candlestick pattern, suggests that any retracements may be limited and present potential re-entry opportunities for trend-following bulls.
The currency pair is now on course to challenge increasingly ambitious resistance levels. Price action has already breached the 1.3340 level during intraday trading, with subsequent targets likely to fall in the 1.3390 and 1.3440 regions. These zones correspond to prior peaks from earlier in the year and could serve as meaningful technical barriers—though a strong GDP print or further U.S. data disappointments could see these levels fall in quick succession.
TRADE RECOMMENDATION
BUY GBPUSD
ENTRY PRICE: 1.3340
STOP LOSS: 1.3260
TAKE PROFIT: 1.3440
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