The pound sterling (GBP) continues to hold firm near 1.3300 against the US dollar (USD) on May 14, 2025, capitalizing on a weakened greenback following softer-than-expected US inflation figures for April.
The US Consumer Price Index (CPI) dropped to 2.3% year-on-year, marking its lowest level since February 2021, while core CPI, excluding volatile food and energy prices, held steady at 2.8%. Monthly growth for both headline and core CPI slowed to 0.2%, signaling cooling inflationary pressures.
Despite this, market expectations for a Federal Reserve (Fed) interest rate cut in July remain unchanged at 61.4%, according to the CME FedWatch tool, up from 29.8% last week. This shift follows a US-China agreement to reduce tariffs, which investors view as a positive development for the US economy, delaying anticipated rate cuts.
Investors now await the UK’s preliminary Q1 Gross Domestic Product (GDP) data, due Thursday, to gauge the UK economy’s health, with expectations of 0.6% growth compared to 0.1% in Q4 2024.
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US Dollar Faces Pressure as Trump Pushes for Rate Cuts
The US dollar’s retreat stems from the softer inflation data, which theoretically supports expectations for a Fed rate cut. However, the recent US-China tariff reduction has bolstered economic optimism, prompting traders to maintain bets on steady rates in the 4.25%-4.50% range.
US President Donald Trump has intensified his call for lower rates, posting on Truth Social that falling prices for gasoline, energy, and groceries justify immediate action.
Criticizing Fed Chair Jerome Powell, Trump argued that rate cuts would allow the US economy to “blossom.” Real-time market sentiment suggests mixed views, with some analysts noting that persistent service sector inflation could keep the Fed cautious. The GBP/USD pair’s resilience reflects these dynamics, with the pound benefiting from the dollar’s dip.
Did You Know?
The Pound Sterling, established in 886 AD, is the world’s oldest currency still in use, predating modern coinage systems by centuries.
UK Economic Outlook and Bank of England’s Cautious Stance
In the UK, Tuesday’s labor market data revealed slower job growth, a higher unemployment rate, and easing wage growth for the three months ending in March. Businesses appear to have scaled back hiring due to increased social security contributions effective April.
Moderate wage growth offers some relief to Bank of England (BoE) policymakers, who closely monitor it as a driver of services sector inflation. BoE Chief Economist Huw Pill, speaking at the London School of Economics, warned that structural changes in wage and price-setting behavior could sustain inflationary pressures, potentially necessitating higher interest rates.
The upcoming UK GDP data will be pivotal, with stronger-than-expected growth likely to bolster the pound further. Recent reports indicate analysts are cautiously optimistic about the UK’s economic recovery, though global uncertainties linger.
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Technical Outlook: GBP/USD Eyes Bullish Momentum
The GBP/USD pair has climbed above the 20-day Exponential Moving Average (EMA) at 1.3255, signaling a bullish trend. The 14-day Relative Strength Index (RSI) hovers between 40.00 and 60.00, with a break above 60.00 potentially triggering fresh upward momentum.
Resistance lies at the three-year high of 1.3445, while the psychological 1.3000 level offers strong support. Real-time technical analysis from financial platforms highlights growing trader confidence in the pound’s near-term strength, driven by the dollar’s weakness and anticipation of positive UK economic data.
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