The British Pound continued to gain ground against both the US Dollar and the Euro over the past week, with GBP/USD reaching a three year high. While GBP/EUR has remained relatively flat, the pair have still managed to recover notably from April’s lows, reinforcing the Pound’s broader momentum.
Midweek, UK inflation data provided a significant catalyst. Consumer Price Index (CPI) figures surprised the upside, rising to 3.5 per cent, well above both the forecast of 3.3 per cent and the previous reading of 2.6 per cent. The higher-than-expected print strengthens the case for the Bank of England to maintain its current interest rate stance amid persistent inflationary pressures, despite market speculation around potential rate cuts later in the year.
Thursday brought a series of key Purchasing Managers’ Index (PMI) releases from the Eurozone, the UK, and the US. Eurozone data fell short across the board, with both Services and Manufacturing readings coming in below the critical 50 threshold. Germany’s Flash Services PMI was particularly weak, slipping to 47.2, highlighting ongoing challenges in the bloc’s largest economy.
UK PMI results were mixed. The Services sector showed resilience, returning to expansion territory above 50. However, Manufacturing continued to struggle, with the PMI falling to 45.1, below expectations and marking another decline from the previous month’s reading of 45.4. In contrast, US data exceeded expectations, with both Services and Manufacturing PMIs registering strong results at 52.3, underlining robust economic performance.
On Friday, UK retail sales provided another positive surprise. Month-on-month growth surged to 1.2 per cent, far exceeding forecasts of a modest 0.3 per cent increase. This sharp rise points to underlying strength in consumer activity, offering further support for Sterling.
Looking ahead, next week’s economic calendar is relatively quiet, with the spotlight turning to the preliminary reading of US GDP. Investors will also remain alert to any developments on the geopolitical front, particularly regarding potential tariff announcements, which could introduce fresh volatility to global markets.
