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Pound Sterling Rallies on Solid UK Growth, Eyes Turn to Fed Powell’s Policy Outlook Amid Dollar Weakness
Economic
Summary:
The Pound rose on strong UK GDP data, while weaker manufacturing figures were overlooked. Markets await Fed Chair Powell’s speech for cues on U.S. interest rates as the Dollar softens.
Buy
CLOSEDGBPUSD
End Time
1.32801
Entry Price
1.35000
TP
1.32000
SL
1.34610 -0.00181 -0.13%
344
Points
Profit
1.32000
SL
1.33145
CLOSING
1.32801
Entry Price
1.35000
TP
The Pound Sterling surged on Thursday, climbing toward the 1.3300 mark against the US Dollar during European trading, buoyed by stronger-than-expected UK GDP data and broader weakness in the greenback ahead of a closely watched speech by Federal Reserve Chair Jerome Powell.
Sterling's rebound comes despite signs of industrial weakness, as investors weigh robust economic expansion in Britain against a backdrop of monetary policy uncertainty in the United States, where the Federal Reserve is increasingly seen as nearing the peak of its tightening cycle.
The Office for National Statistics (ONS) reported that the United Kingdom's economy expanded by 0.7% in the first quarter of 2025, exceeding consensus forecasts of 0.6%. This marks a sharp rebound from the previous quarter, when GDP growth was stagnant, and signals growing resilience in the face of elevated interest rates and inflation pressures.
On an annual basis, UK GDP rose 1.3%, marginally ahead of expectations (1.2%) though slightly slower than the 1.5% pace recorded in Q4 2024. The monthly breakdown showed that GDP increased by 0.2% in March, outperforming economists' expectations for flat growth. The surprise upside in GDP data has added fresh momentum to the Pound, as it implies that the Bank of England (BoE) may hold off on any immediate policy easing.
BoE Monetary Policy Committee member Catherine Mann reinforced that message earlier this week. Speaking to CNBC, Mann said monetary policy should remain restrictive due to persistent inflation risks and a still-resilient labor market. Despite recent softness in job growth, Mann emphasized that the market is undergoing a “non-linear adjustment,” not a dramatic slowdown, and warned against loosening policy prematurely.
However, the UK’s growth narrative isn’t without blemish. Manufacturing and Industrial Production contracted more than expected in March, with month-on-month figures showing a decline of 0.8% and 0.7%, respectively. Both indicators undershot the consensus forecast for a 0.5% contraction, suggesting that while consumer and service sectors are holding up, the industrial side remains under pressure—likely a consequence of persistent supply-side constraints and trade uncertainty.
Still, the broader macro picture, bolstered by strong GDP and a resilient services sector, is helping the Pound fend off downside risks. Markets are recalibrating expectations for the BoE’s interest rate path, which now appears increasingly tilted toward a prolonged pause rather than an imminent rate cut.
Meanwhile, in the U.S., traders are closely watching Fed Chair Jerome Powell’s upcoming remarks for any indication of a shift in tone following this week’s softer-than-expected Consumer Price Index (CPI) report. April CPI data showed inflation cooling more than anticipated, adding to speculation that the Fed might pivot to rate cuts later in the year, even as officials maintain a hawkish front.
Fed Vice Chair Philip Jefferson acknowledged the softer CPI numbers in remarks on Wednesday, describing the Fed’s current policy stance as “moderately restrictive.” However, he warned of looming uncertainties tied to new economic policies enacted by President Trump’s administration—including the impact of recently imposed tariffs. “If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation,” Jefferson cautioned.
According to the CME FedWatch Tool, markets now largely rule out a rate cut before the September meeting. Nonetheless, two 25 basis-point cuts are still priced in for 2025, contingent on continued disinflation and labor market moderation
Upcoming U.S. economic releases may sway market sentiment further. April’s Producer Price Index (PPI) is expected to show a slowdown in price pressures, with forecasts pointing to a 2.5% year-on-year rise in headline PPI, down from 2.7% in March. Core PPI, which strips out food and energy, is also projected to decelerate to 3.1% from 3.3%.
In tandem, retail sales—a key gauge of consumer spending—are projected to be flat in April, following a robust 1.5% jump in March. A soft retail print would likely reinforce the view that the U.S. economy is cooling, giving further impetus to the Fed doves.
Adding to the risk-on sentiment is the temporary truce between the U.S. and China. The two countries recently agreed to a 90-day pause on tariff escalation, cutting some levies by as much as 115% and pledging further negotiations. The reprieve, though fragile, has alleviated market fears of an imminent escalation in the trade conflict, offering breathing room for equities and risk currencies alike.
Technical Analysis
From a technical standpoint, the GBP/USD pair has reclaimed bullish momentum, trading back within a range previously capped between 1.32325 and 1.34155. After breaking below the 1.32325 mark, the pair staged a convincing recovery with a structure flip, signaling potential for further upside.
Should price action continue to hold above this range and confirm a clean retest, traders may target a revisit of the 1.34155 zone. A successful breach could pave the way for fresh yearly highs. For now, bulls are eyeing a 1:3 risk-reward long setup, anticipating renewed buying interest amid supportive macro tailwinds.
TRADE RECOMMENDATION
BUY GBPUSD
ENTRY PRICE: 1.3280
STOP LOSS: 1.3200
TAKE PROFIT: 1.3500
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