Pound Sterling Nears Annual High At $1.2870 On Strong UK GDP

GBP/USD extends gains toward $1.2900 after UK data

Pound Sterling rose after the UK's GDP rose more than expected in May, lessening the odds of an interest rate cut on August 1.

Pound Sterling rallies to near $1.2870 and approaches the year-to-date high against the US Dollar (USD) in Thursday’s London session. The GBP/USD pair strengthens due to multiple tailwinds, such as weakness in the US Dollar due to firm speculation that the Federal Reserve (Fed) will begin reducing interest rates in September and an upbeat outlook for the British currency amid easing Bank of England’s (BoE) early rate cut bets and strong United Kingdom (UK) Gross Domestic Product (GDP) report for May. 

The Pound to Euro exchange rate rallied to a one-month high, and the Pound to Dollar exchange rate reached a four-month high after the ONS said UK GDP rose 0.4% month-on-month in May. This more than doubled the consensus estimate for 0.2% growth while eclipsing April's flat 0% reading. The growth came from services, the largest sector of the UK economy, where output grew by 0.3% in May 2024.

No Major Data

GBP/EUR rallies above €1.1871 as UK economy rebounds faster than expected

GBP/EUR remains strong around €1.1871 during the early European session on Thursday. The cross trades with mild losses after the monthly UK Gross Domestic Product (GDP) data. On the Euro front, the European Central Bank (ECB) governing council member Fabio Panett said on Tuesday that the ECB can continue to lower interest rates, adding that wage growth, a central driver of inflation, was “not warranted.” Traders raise their bets on an ECB rate cut this year, which might cap the cross’s upside in the near term.

No Major Data

The Greenback comes under pressure as Fed Chair Jerome Powell signalled some disinflation progress

Federal Reserve (Fed) Chairman Jerome Powell presented the Semi-Annual Monetary Policy Report and responded to questions before the Senate Banking Committee on the first day of his Congressional testimony on Tuesday.

Powell reiterated that it will not be appropriate to lower the policy rate until they gain greater confidence in inflation heading sustainably toward 2%. Assessing the developments in the job market, "the most recent labour market data sent a pretty clear signal that the labour market has cooled considerably," Powell said.

Following these remarks, the probability of the Fed leaving the policy rate unchanged in September stays near 25%, according to the CME FedWatch Tool.

Powell will testify before the House Financial Services Committee later in the day. Investors, however, are likely to await todays June Consumer Price Index (CPI) data before deciding on the next direction for GBP/USD.

Data:

1:30pm - Core CPI & Unemployment Claims