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Market Predictions
The Pound Sterling (GBP) slid below 1.3330 against the US Dollar (USD) during Friday’s North American session. GBP/USD reversed its intraday gains as the US Dollar gained strength following the release of US Consumer Sentiment and Inflation Expectations data.
The US Dollar Index rose to approximately 100.90 as the Flash Michigan Consumer Sentiment Index fell to 50.8, its lowest in nearly a year. Consumer Inflation Expectations for May increased to 7.3%, likely influencing the Federal Reserve to maintain current interest rate levels between 4.25%-4.50%.
Predictions show a 91.8% likelihood of steady rates in June and a 61.4% chance in July. Earlier weaker-than-expected Producer Price and Retail Sales data had initially pressured the US Dollar. Retail Sales grew just 0.1% in April compared to March’s 1.5%, with auto sales decreasing slightly.
The Pound initially rallied on strong UK GDP data, suggesting potential for the Bank of England to sustain interest rates. However, some concerns about persistent inflation remain among BoE officials. Upcoming UK Consumer Price Index data will be crucial to market expectations regarding future rate cuts.
The GBP/USD pair suggests a bullish outlook as it remains above the 20-day EMA, while the RSI maintains a neutral range, with important support found around the 1.3000 mark.
Market Movements
The Pound falling beneath 1.3330 on Friday came after a brief lift earlier in the day, which quickly lost steam once sentiment data from the US made its way across the wires. What initially appeared to be a moment of GBP strength turned short-lived, as the greenback picked up pace amid expectations that inflationary pressures in America remain a concern. We saw a reaction in the US Dollar Index, which edged towards 100.90, not because market sentiment was altogether upbeat—it wasn’t—but because inflation expectations provisionally jumped to 7.3%.
That figure tells us something. Even as actual consumer mood dipped sharply, with the Michigan Consumer Sentiment Index marking a new annual low at 50.8, concerns about inflation took over. It’s generally rare to see inflation expectations move in one direction while sentiment points in the other; nonetheless, this divergence keeps the Federal Reserve boxed into maintaining higher borrowing costs. We now see futures markets now pricing in more than 90% probability for rates to remain steady in June, and over 60% into July.
For positioning, that is meaningful. It limits downside on the USD, and implies that dips in the Dollar—especially when sparked by mixed data like Retail Sales and PPI earlier last week—could quickly be reversed when stronger inflationary signals emerge. We noted US Retail Sales growing just 0.1% in April, a sizeable drop from March’s 1.5%. In terms of volume, motor vehicles declining didn’t help that picture either. That should have weighed more heavily on the Dollar, but the inflation read clearly took precedence.
From the UK side, the Pound did try to lean on better-than-expected growth figures released prior. However, even though those numbers supported speculation that the Bank of England may not rush to lower interest rates, inflation anxieties among policymakers remain. The Monetary Policy Committee hasn’t settled internal disagreements either, and this lack of cohesion does feed into market assumptions that rate cuts won’t come soon.
Eyes will turn to next week’s Consumer Price Index data from the UK, and any signs of either easing or persistent inflation will heavily shape rate path expectations. If price pressures come in softer, forwards may quickly move to bring forward timing of a potential rate reduction. On the other hand, sticky figures would offer support to the Pound, especially if matched with relatively quiet moves in US Treasury yields.
Technically, GBP/USD is showing a tendency to find buyers near the 20-day moving average. The pair hasn’t broken far below it, which would generally indicate there’s still underlying demand at slightly lower levels. The Relative Strength Index sits neutral, which suggests there’s room to move in either direction without immediately flashing overbought or oversold signals. We find reasonable support near 1.3000, where prior demand has tended to build up.
From a volatility perspective, we consider upcoming CPI prints and commentary from central banks as key schedule events. Watching the implied volatility on near-term GBP/USD options suggests traders aren’t bracing for sudden shocks, but we note modest rises in the short-dated wings, especially in risk reversals favouring dollar strength below 1.3200. That’s meaningful, particularly for short-dated options linked to tighter CPI ranges.
In our view, this backdrop allows room to explore topside exposure carefully so long as risk is managed near support. Should inflation surprise on either side, that will be the driver to re-evaluate strategy. We’ve been through sessions where Sterling strength gets quickly undermined by revived Dollar demand. We’ll need to tread accordingly—timing entries around calendar data, and not stretching positioning too far in advance of CPI releases, will prove more effective than broad directional bias alone.
