The British pound held firm below 1.3300 in early Thursday trading after the UK posted better-than-expected economic data. The preliminary Q1 GDP rose 0.6%, outpacing Q4 2024’s modest 0.1% growth. Business investment also surprised to the upside, offering some reassurance on the economy’s resilience.
Despite the positive data, GBP/USD traded just above 1.3250, as investors weighed the broader implications for Bank of England policy. Labor market figures earlier this week showed softening conditions—unemployment ticked up and wage growth eased, signaling that employers are adjusting to rising social security costs and uncertain demand.
The BoE remains in a tightening-to-neutral phase, monitoring wage inflation and services sector pricing pressure. Though inflation remains above target, the cooling labor data could give policymakers some breathing room.
Weaker Dollar Supports Sterling Near 1.3250
The pound also drew strength from broad-based U.S. dollar weakness, with investors preparing for fresh signals from Federal Reserve Chair Jerome Powell and key U.S. economic releases.
The Trump administration’s push for a weaker dollar to improve export competitiveness has added a political layer to currency dynamics. While not an explicit policy shift, officials have expressed concern about the dollar’s strength in relation to the euro and yen.
However, expectations of a sharp Fed pivot are moderating:
- 74% chance of a 25 bps cut in September (LSEG data)
- Market expectations for a July cut have declined
- U.S. inflation remains sticky, prompting caution
Stronger global trade sentiment has also cooled fears of a near-term U.S. recession, adding backstop support to the greenback.
Traders Watch BoE, Fed Policy Gap Closely
As policy divergence narratives evolve, traders are closely eyeing moves from both central banks.
📌 Key developments impacting GBP/USD:
- UK Q1 GDP +0.6%, strongest growth since early 2023
- Unemployment rate rises to 4.4%, from 4.2%
- U.S. PPI and Powell speech expected Thursday afternoon
- Fed policy easing expectations delayed to late Q3
Speculative flows into GBP have remained stable, with positioning data suggesting balanced sentiment. However, macroeconomic clarity from both sides of the Atlantic will be crucial in determining whether GBP/USD can reclaim and sustain levels above 1.3300.
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