The recent UK GDP data showed that the U.K. economy is back to growth, expanding faster than expected in May. The GBP/USD pair holds steady above 1.2850, with traders eagerly awaiting the upcoming U.S. inflation figures.
UK GDP Data Shows Economy Exceeds Expectations in May
In May, the United Kingdom’s economy showcased its resilience by achieving a growth rate of 0.4%, exceeding the anticipated 0.2% rise. This growth, which followed a stagnant period in April and an upturn in March, was predominantly propelled by the services sector, particularly in information technology and professional scientific services.
During the first quarter of the year, from January to March, the U.K.’s Gross Domestic Product (GDP) expanded by 0.7%, signifying a rebound from the economic downturn experienced in the latter half of 2023. Moreover, inflation retreated to the 2% target in June for the first time in nearly three years as the Consumer Price Index (CPI) decreased from 2.3% in April to 2% in May.
Summary table
| Period | Growth Rate | Key Highlights |
|---|---|---|
| May | 0.4% | Exceeded the anticipated rise of 0.2%. Driven by services sector, notably IT and professional scientific services. |
| April | 0.0% (Stagnant) | No growth; remained stagnant. |
| March | Growth (specific rate not provided) | Experienced an upturn. |
| January to March (Q1) | 0.7% | Signified a rebound from the economic downturn of late 2023. |
| June | Inflation at 2% | CPI decreased to 2%, reaching the target for the first time in nearly three years. |
| April to May | CPI decrease | CPI dropped from 2.3% in April to 2% in May. |
Market Reaction to UK Data
During the European morning session on Thursday, the GBP/USD pair continued to show resilience, staying above the 1.2850 mark. This was supported by the ongoing weakness of the U.S. Dollar and a positive market sentiment following encouraging UK GDP and industrial data releases.
GBPUSD 4-hour Chart
The Pound Sterling strengthened its position against the U.S. Dollar, building on its recovery from the previous week. This upward movement was fueled by better-than-expected UK GDP data, which bolstered investor confidence in the British economy. Forex traders are now eagerly awaiting the release of U.S. Consumer Price Index (CPI) inflation data, which is expected to provide additional guidance for market direction.
The upcoming CPI data is highly anticipated because it will offer insights into the inflationary trends in the United States, influencing the Federal Reserve’s future monetary policy decisions. If the inflation data indicates a higher-than-expected rise, it could prompt the Fed to consider more aggressive interest rate hikes, potentially strengthening the U.S. Dollar. Conversely, if the inflation figures come in lower than expected, it might lead to a more dovish stance from the Fed, thereby benefiting the Pound Sterling.
As forex traders closely monitor these developments, they remain poised to adjust their positions based on the new economic indicators, which will likely set the tone for the GBP/USD currency pair in the near term.
Anticipation of U.S. CPI Data
The upcoming U.S. CPI data is expected to show an annual inflation rate of 3.1% for June, down from the 3.3% reported in May. The core CPI inflation excludes volatile food and energy prices and is anticipated to hold steady at 3.4%.
Impact on Other Currency Pairs and Gold
EUR/USD on the Rise
The EUR/USD pair is gradually advancing toward 1.0850 in the European session. However, further upside might be limited as traders await the critical U.S. consumer inflation figures.
Gold’s Momentum
Gold prices are extending their positive momentum into the third consecutive day, with the market eagerly awaiting the U.S. CPI data. A softer inflation figure could reinforce expectations of a September U.S. Federal Reserve interest rate cut, potentially pushing XAU/USD to retake the $2,400 level.
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