GBP Aims Higher on Strong Economic Indicators and Weaker USD

In the early New York session on Thursday, the Pound Sterling (GBP) is poised to extend its recovery above the one-week high of 1.2660 against the US Dollar (GBP/USD). This surge in GBP strength is underpinned by recent economic indicators signalling a robust recovery trajectory for the United Kingdom’s economy, following its technical recession in the latter half of 2023. Furthermore, a weakened US Dollar, attributed to disappointing United States Institute of Supply Management (ISM) Services PMI data for March, has further bolstered the Cable’s upward momentum.

One of the key drivers contributing to the GBP’s strength is the surprising expansion in the UK’s Manufacturing Purchasing Managers’ Index (PMI) for March. After contracting for 20 consecutive months, the PMI’s upward trajectory is fuelled by robust domestic demand. This notable improvement in manufacturing activity has propelled business sentiment to its highest level since April 2023, with a significant majority (58%) of manufacturers anticipating an increase in production levels over the next 12 months.

Moreover, the resilience of the UK’s real estate sector is evident in the March data, which indicates a 1.6% rise in British house prices. This uptick represents the fastest pace of growth since December 2022 and underscores the sector’s ability to withstand historically higher interest rates.

In the European session, insights from the latest Bank of England (BoE) Decision Maker Panel (DMP) survey for February shed light on prevailing sentiment among businesses. Most firms anticipate a moderation in both selling prices and wage inflation over the coming year. Selling price expectations have decelerated to 4.1%, marking the lowest reading in over two years, while wage growth expectations have softened to 4.9% on a three-month moving average basis, down from 5.2% in February.

The convergence of these positive economic indicators underscores the GBP’s resilience and potential for further gains against the US Dollar. As the UK economy continues to exhibit signs of recovery and business sentiment remains buoyant, investors are likely to favour the Pound Sterling, particularly in light of the weakened stance of the US Dollar. However, ongoing developments in both economies, including monetary policy decisions and geopolitical dynamics, will continue to influence currency markets in the days ahead.