Pound Sterling Rises As Strong UK Q1 GDP Improves Economic Outlook

GBP/USD rises to near $1.2540, driven by higher UK GDP

GBP/USD edged higher to near $1.2540 during Asian hours on Friday, buoyed by the release of higher-than-expected UK Gross Domestic Product (GDP) data for the first quarter. GDP (QoQ) rose by 0.6%, reversing the previous quarter's decline of 0.3%, surpassing expectations of a 0.4% increase. Additionally, GDP (YoY) increased by 0.2%, rebounding from the previous decline of 0.2%. However, GBP encountered challenges following the Bank of England’s (BoE) decision to maintain the interest rate at 5.25% on Thursday. Reuters reported that BOE Governor, Andrew Bailey mentioned during the post-decision press conference that "a rate cut next month was a possibility," but he intends to wait for inflation, activity, and labour market data before deciding. This has raised the prospect of future rate cuts, putting pressure on the British Pound and weakening the GBP/USD pair.

Major Data:

Gross Domestic Product (MoM)(Mar): 0.4%

Gross Domestic Product (YoY)(Q1): 0.2%

12:15 (GMT) BoE's Pill speech

Eyes on ECB minutes

The Pound to Euro exchange rate rallied to €1.1630 after the ONS said UK GDP rose 0.6% quarter-on-quarter in the first quarter of 2024, outstripping consensus expectations for 0.4% "Wow. Big beat for the UK economy. I am feeling more comfortable about my growth estimate of 1.2% for 2024 vs consensus at 0.4%," says Simon French, an economist at Panmure Gordon. Today’s highlight for eurozone markets is the latest European Central Bank minutes from its April meeting. It is possible that there will be references to a June rate cut, or at least indications that there is growing consensus to start cutting rates soon. Market pricing for June is, however, already 24bp, so the impact will hardly be huge on FX. It will be more interesting to see whether there are indications on future plans beyond June. This appears to be at the centre of the debate and many policy comments by ECB officials. For now, markets continue to price in 72bp of easing in total by year-end.

Major Data:

08:00 (GMT) ECB's Cipollone speech

09:45 (GMT) ECB's Elderson speech

Steadily cooling US labour market keeps US Dollar on edge

The US Dollar (USD) recovers modestly during the Asian session on Friday. However, the near-term appeal is still uncertain as higher-than-projected Initial Jobless Claims (IJC) for the week ending May 3rd indicated that the United States (US) labour market is struggling to bear the burden of Federal Reserve’s (Fed) restrictive policy framework. IJC being the latest in a string of underperforming indicators from the US economy has shifted JP Morgan’s mentality on the Dollar, saying "We have long-held a bullish view on the dollar; do recent developments warrant a re-think?". The USD Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds slightly after tumbling to 105.00. The next move in the US Dollar will be guided by April’s US Inflation data, which will be published on Wednesday. The inflation data will provide meaningful cues about whether the FED will start reducing interest rates from September. Till then, interest rate guidance from Fed speakers will drive movement in the US Dollar.

Major Data:

14:00 (GMT) Fed's Bowman speech

15:00 (GMT) Fed's Kashkari speech