The GBP/USD pair has advanced beyond the mid-1.3500s, reaching its highest level since February 2022. The British Pound benefits from positive UK Retail Sales figures and higher-than-expected inflation data, which could influence the Bank of England’s monetary policy decisions.

Conversely, the US Dollar faces challenges due to concerns about the US budget deficit and expectations of further interest rate cuts by the Federal Reserve in 2025. These factors contribute to the USD’s decline, supporting the GBP/USD pair’s upward movement.

Upcoming Us Macroeconomic Data

Upcoming US macroeconomic data, including Durable Goods Orders, Prelim GDP, and the PCE Price Index, may affect the Federal Reserve’s rate decisions, impacting the USD and the GBP/USD pair. Notably, the Pound Sterling is the oldest currency and accounts for 12% of foreign exchange transactions.

The Bank of England’s monetary policy decisions, particularly interest rate adjustments, significantly influence the Pound’s value. Economic indicators such as GDP and trade balance also play a role in determining the strength of the Pound Sterling.

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With the GBP/USD having pushed above the mid-1.3500s, sterling has now reached territory not seen since early 2022. This move has not materialised in isolation. The stronger-than-expected inflation figures from the UK, coupled with robust retail sales, have added weight to sentiment that the Bank of England may hold rates higher for longer, or at least remain cautious before any easing. Traders are factoring in the possibility that inflationary pressures may not abate as quickly as some had hoped, particularly in services and energy.

Retail data showing resilience implies consumers are still spending despite higher borrowing costs. That, in turn, suggests underlying demand in the economy remains firm enough to possibly delay any policy shift towards rate cuts, which could mean sterling retains further upside in the near term. We have to consider how finely balanced this decision-making environment is—where one strong data point can briefly upend expectations.

Across the Atlantic, the Dollar has continued to face consistent downward pressure. Weakening sentiment around fiscal responsibility—especially with the ballooning budget deficit—has contributed to this slide. Traders are becoming increasingly wary about what that means for long-term yields and the broader appeal of US assets. In parallel, there’s growing clarity around expectations that the Federal Reserve will shift towards easing in 2025, which only adds to the negative tilt for the greenback.

All Attention Now Turns To The Next Us Data

All attention now turns to the next batch of US data. The upcoming releases, particularly the core PCE price index and second estimate GDP numbers, will carry extra weight in determining whether the market is leaning too far ahead of the Fed. If inflationary indicators continue to soften while growth moderates, then the prospect of rate cuts could become even more entrenched in market positioning. That would arguably lift the risk appetite for higher-yielding or more stable currencies—maintaining support for the pound in the near term.

From our point of view, any short-term weakness in the dollar is likely to be closely tied to this data and how it aligns with expectations. Durable goods orders, in particular, might remain choppy, but surprises to the downside would reinforce current policy speculation. As always, short-term derivative positioning should remain nimble. Leverage of any size should be carefully managed, particularly in light of heightened volatility around data releases.

We also shouldn’t ignore how the strength of sterling is not merely a reflection of economic surprise. Some of the support is being driven by positioning—after a long period of underperformance, a structural unwind appears to be taking place. That can persist longer than fundamentals typically allow.

Looking downstream, small shifts in trade balance or GDP expectations within the UK could also feed into currency moves more acutely than usual. Because rates are already perceived to be near peak, even the smallest hint of stickier inflation or stronger domestic demand could weigh heavily on expectations of when easing might begin.

For the weeks ahead, staying close to macroeconomic indicators and central bank language will be essential. Positioning bias remains asymmetric. While shorting the dollar has become a more frequent theme, it brings risks, especially if hawkish comments emerge or data bounces back unexpectedly. Policy recalibration can happen in sharp bursts, and recent history has shown how quickly consensus can change if the numbers don’t match the narrative.

Managing exposure tightly and reassessing risk tolerances at key technical levels will be vital. We anticipate volatility increasing around primary releases.

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