Insights 
VT 
The Pound Sterling rose to near 1.3350 against the US Dollar amid weaker US inflation data for April. US headline inflation grew by 2.3%, the lowest in over four years, while core CPI rose by 2.8%, aligning with predictions. The probability of the Federal Reserve maintaining interest rates at 4.25%-4.50% in July stands at 61.4%, a notable increase from last week’s 29.8%. This follows the US-China agreement on tariff reductions, which has affected expectations for rate cuts.
In the UK, a mixed performance was seen against major peers, impacted by labour market data showing reduced job growth and higher unemployment for the three months ending March. This is attributed to businesses preparing for increased social security contributions effective in April. The UK economy is projected to have grown by 0.6% in Q1, surpassing the previous quarter’s 0.1% growth. The Bank of England may raise interest rates if inflation persists, despite cooling price pressures.
Pound Sterling Forecast
The GBP/USD pair has climbed above the 20-day EMA, suggesting a renewed bullish trend. The currency could test the resistance of 1.3445, with 1.3000 serving as strong support. The Pound’s future will be influenced by the UK’s Q1 GDP and factory data.
What we’ve seen so far points to a shift in sentiment favouring Sterling, prompted largely by the softer inflation print out of the US. The 2.3% rise in headline CPI for April marks its weakest pace in over four years – a detail that hasn’t gone unnoticed by markets. The more muted core CPI figure, which came in right along with estimates, added to the perception that inflationary pressure stateside may be waning enough for the Federal Reserve to stand pat on interest rates fairly soon.
Indeed, rate markets have priced in a higher chance of the Fed holding steady at 4.25%-4.50% by July – up sharply from the previous week. This is not just about inflation moderating; it’s also in response to the tariff agreement with Beijing, which suggests easing international cost input pressures. With external trade factors settling somewhat, it’s reasonable to believe the Fed may see less urgency in tightening further.
Economic Tensions in the UK
From our perspective, this tilt in expectation provides space for the Dollar to soften, particularly in pairs like GBP/USD. But domestic data remain key. While Sterling has lifted towards 1.3350, taking out the 20-day EMA in the process, it hasn’t been a smooth climb.
Tensions remain under the surface in the UK economy. The rise in unemployment and slower job creation over Q1 can’t be ignored. Employers appear to be rebalancing ahead of higher National Insurance costs, a move that’s already filtering into hiring decisions. Nevertheless, early GDP readings show the British economy grew by 0.6% in the first quarter – a pick-up from Q4. This misalignment between softer labour and stronger GDP may cause volatility in the weeks ahead.
Bailey has indicated that the Bank of England could still lean on rate hikes if core inflation remains a worry. That decision, however, hinges not just on headline inflation but also on output and wage growth readings. Should services inflation or wage gains remain uncomfortably high, we may see markets adjust once again toward tighter policy expectations.
In terms of technical structure, Sterling now faces a challenge: navigate between the upside test of 1.3445 and the major floor at 1.3000. That band will define most risk-reward calculations over the next month. A daily close above 1.3350 would be confirmation of continuing demand, while a slide back below the 20-day EMA could invite a challenge of 1.3150 levels.
As we position through the next few weeks, factory orders and industrial output figures from the UK will be key triggers. If those rebound in step with Q1’s stronger GDP showing, another leg higher in GBP/USD could be justified. Still, any hawkish tilt in Fed communication – even in a no-hike scenario – might offset current tailwinds.
Monitor the rate futures curve closely. It has become one of the better indicators of short-term direction in this pair. Right now, it leans toward favouring the Pound. But such leanings can pivot quickly with even a modest change in core inflation or employment figures from either side of the Atlantic.
