Insights 
VT 
GBP/USD climbed to near 1.3468, its highest since February 2022. UK Retail Sales figures for April might show a third consecutive monthly drop.
On Friday, GBP/USD gained approximately 0.25%, trading around 1.3450. This increase occurred after a better-than-expected result in the UK Consumer Confidence Index for May, which rose by three points to -20.
UK Economic Indicators and Their Impact
Despite this, the UK Manufacturing Purchasing Managers’ Index dropped to 45.1 in May, against predictions of 46.0. Conversely, the Preliminary UK Services Business Activity Index increased to 50.2 from April’s 49.0.
The US 30-year bond yield fell after peaking at 5.15%, influenced by worries over the fiscal deficit. Trump’s budget plan passed the US House with a single vote, potentially raising the deficit by $3.8 billion.
UK Retail Sales data, established by the Office for National Statistics, indicates consumer spending. A rise in sales is typically positive for the Pound, while a drop suggests the opposite. The next retail sales release is scheduled for 23 May 2025. The frequency of these reports is monthly, with a consensus expectation of 0.2% following a previous 0.4% increase.
We’ve just seen sterling edge up to its highest point against the dollar since early 2022. That’s not something to dismiss lightly. The move to 1.3468, while not explosive, does reflect the layering of several factors—some domestic, others across the Atlantic—and their combined effect on sentiment.
The gain on Friday, just a quarter of a percent at face value, was supported by a surprise uplift in consumer confidence. GfK’s May print came in a bit better than expected, clocking in at -20. While still firmly in negative territory, that three-point increase suggests households may be just slightly less pessimistic than they were in April. Markets respond to changes more than levels, and this nudge higher helped underpin buying interest in the pound.
That said, it’s not an all-clear signal. At the same time as households appeared more upbeat, factory activity tracked lower again. The May flash PMI figure for manufacturing dropped to 45.1, missing not only the 50-point expansion mark but also undershooting expectations. What complicates things here is that UK manufacturing has struggled for months, and any fresh downward pressure tends to weigh on broader perceptions of growth stability.
Outlook and Market Reactions
Yet the services sector showed the first signs of life in some time. With a print barely above the 50 break-even line, services activity finally crept back into expansionary territory after slipping into contraction last month. While no one would call it robust, it suggests a sector stabilizing, maybe even picking up incremental momentum.
From the US, the story pivots more around yields and policy risk, with 30-year Treasuries backing off after hitting 5.15%. This retreat followed news around the federal budget, particularly the passage in the House of a plan that might expand the long-term deficit figure by nearly $4 billion. Lower yields typically dampen demand for the dollar, as returns on US assets soften. That, in turn, supports other major currencies, especially if the economic data back home—like in Britain—doesn’t disappoint too badly.
Now looking ahead, retail sales numbers loom large. Set for release on 23 May, the consensus projection is for a 0.2% monthly gain. That comes after a slightly stronger 0.4% rise previously logged, but the broader expectation is cautious, not exuberant. Retail performance gives us a reliable view into consumption trends. If the April print shows contraction again, that would mark three straight months of falling consumer purchases—and that would not be brushed aside by the market.
From our side, adjusting options strategies into that release makes sense. Volatility could be compressed right now due to the upbeat medium-term cable trajectory, but that mask could slip quickly on a disappointing print. Pay particular attention to implied volatility around the strike ranges of 1.34 to 1.35; there may be opportunities for directional positioning, especially if data lands outside consensus.
Keep an eye, too, on yield spreads, particularly the UK-US 2-year differential. Recent moves in these have provided a reliable lead during key datapoints, and movement there could confirm—or invalidate—short-term pricing on directional volatility trades.
Given all of this, risk-reward tilts toward cautious optimism in the near term, although it’s underpinned with several layers that could unravel quickly. We’ll continue watching the blend between macro data and expectations, particularly as sentiment shifts in response to even mild surprises.
