Sterling edged higher against major peers after the UK’s April GDP report, with GBP/USD recovering most of its earlier drop to around 1.3410. The Office for National Statistics said output fell 0.1% on the month, matching expectations, after a 0.3% rise in March as consumers and firms brought forward purchases. Industrial Production was unchanged month-on-month following a 0.2% decline previously, despite forecasts for a 0.1% increase, while Manufacturing Production rose 0.4% versus expectations for a 0.2% fall.
Attention now turns to next week’s UK employment figures for the three months to April and May’s CPI, alongside the Bank of England’s monetary policy decision. The US Dollar stabilised after Thursday’s decline as traders doubted an imminent US-Iran agreement. The Dollar Index (DXY) was last up 0.15% at about 99.80, reflecting a modest rebound in the greenback.
GBP Supported by Mixed UK Data
The British Pound is finding some support following the release of the UK’s monthly GDP data. The report from the Office for National Statistics showed the economy contracted by 0.2% in April, which was in line with expectations. This has allowed the GBP/USD pair to recover some of its earlier losses and move towards the 1.2750 level.
Despite the headline contraction, there were pockets of strength, particularly in the manufacturing sector. Recent S&P Global/CIPS UK Manufacturing PMI data for May showed a reading of 51.5, beating expectations of 50.8 and indicating modest expansion. This mixed data reinforces the view that the economic path remains uncertain.
Market Outlook and Key Events
Looking ahead, we expect significant volatility for the Pound over the coming weeks. The key events will be the UK employment figures, the May inflation (CPI) data, and most importantly, the Bank of England’s (BoE) upcoming monetary policy decision. These events are likely to cause sharp movements in the currency markets.
Given the expected surge in volatility, we are looking at strategies that can profit from sharp price swings. Buying straddles or strangles on GBP/USD options could be a prudent approach ahead of the BoE announcement. This allows for a potential payoff regardless of whether the Bank delivers a hawkish or dovish surprise.
Meanwhile, the US Dollar continues to show broad strength, with the US Dollar Index (DXY) trading firmly near 105.50. Persistent inflation data from the US suggests the Federal Reserve may be slower to cut interest rates than other central banks. Uncertainty surrounding ongoing UK-EU trade negotiations is also providing a headwind for the Pound, adding to the dollar’s appeal.
