Sterling held up on Thursday despite weak UK data. The Composite PMI fell into the high 40s versus forecasts above 51, services moved into contraction, and manufacturing was the only part that beat expectations.
GfK consumer confidence also fell further. At the same time, one Bank of England MPC member made hawkish remarks, while Governor Bailey spoke with little market impact.
Pound Supported By Dollar Weakness
The pound’s steadier tone was linked to US Dollar weakness. A burst of US risk appetite on rumours of an imminent US-Iran ceasefire pushed the Dollar down and helped Sterling off its intraday low, but the rumour later faded.
Iran was still seeking to impose tolls through the Strait of Hormuz and would not discuss nuclear material, which remained sticking points for Washington. Without the Dollar move, there was little domestic support for Sterling.
UK Retail Sales for April are due on Friday, with consensus at a 0.6% month-on-month fall after a 0.7% rise, and 1.3% year-on-year growth. Next week includes a BoE speech on Thursday and US Core PCE inflation the same day, with a new Fed chair in place.
Technically, GBP/USD was between the 200-day EMA near 1.3400 and the 50-day EMA around 1.3450. Support sat at 1.3400 then 1.3350, with resistance at 1.3450 and 1.3500.
May 2026 Data Echoes 2025 Pattern
We are seeing a familiar pattern emerge that reminds us of the situation back in 2025. The latest flash Composite PMI for May 2026 just printed at a weak 49.2, falling into contraction when markets expected a reading above 50.5. With the GfK consumer confidence index also recently hitting a six-month low of -20, the domestic picture for the UK economy looks shaky.
This weak economic data creates a difficult backdrop for the Bank of England, which is still fighting inflation that remains stubbornly above target at 3.1%. Just last week, we heard hawkish remarks from a policymaker about the persistence of underlying price pressures. This puts the central bank in the same awkward bind we saw last year: talking tough on inflation just as the economy appears to be stalling.
For now, the Pound is being supported by short-term weakness in the US Dollar, which has softened on the back of weaker-than-expected US retail sales figures. This external support is masking the Pound’s own vulnerabilities, much like temporary geopolitical rumors did in 2025. Without this fragile lift from the Dollar, Sterling would likely be trading much lower based on its own fundamentals.
Looking ahead, traders are focused on the upcoming US Core PCE inflation data next week, which will be a major driver for the Dollar. A hot US inflation number could reverse the Dollar’s recent weakness and expose the Pound to significant downside pressure. The UK’s own inflation report will also be critical, as another high reading would intensify the Bank of England’s policy dilemma.
Given this setup, it makes sense to consider strategies that position for a weaker Pound, especially if the technical support around 1.2500 gives way. Buying put options with a strike price around 1.2450 could offer a good risk-to-reward opportunity if upcoming data pushes the currency lower. The Pound appears trapped below resistance at 1.2620, and the path of least resistance seems to be to the downside once the Dollar finds its footing.
