GBP/USD Rebounds on Upbeat UK Data and Softening US Inflation

The GBP/USD pair witnessed a surge of over 0.50% in response to robust economic data from the UK and a moderation in US inflation. The cooling of US Core Personal Consumption Expenditures (PCE) inflation and the avoidance of a recession in the UK's Q1 GDP provided a boost to the British Pound (GBP) against the US Dollar (USD). This rally in the GBP was fueled by market expectations of a less aggressive stance from the Federal Reserve (Fed), leading to a 0.50% drop in the US Dollar Index.

On the last day of the week, month, and quarter, the GBP/USD pair rebounded strongly, experiencing a rise of more than 0.80% after initially hitting a daily low of 1.2599. The positive UK economic data, coupled with the easing US inflation, played a significant role in bolstering the GBP. The Pound Sterling is set to finish the month with a gain of 2%, demonstrating its strength in the face of recent market dynamics. As of the time of writing, the GBP/USD pair is trading at 1.2717.

The impressive UK GDP data and the moderation in US inflation contributed to the strength of the Pound Sterling, pushing it past the 1.2700 level against the US Dollar. The latest US inflation report provided some relief to the Federal Reserve, which has been grappling with persistent inflationary pressures. The Core PCE, the Fed's preferred inflation gauge, rose less than anticipated, with a monthly increase of 0.3%, lower than the previous month's 0.4%. Additionally, the annual figures decreased to 4.6% from 4.7%. Headline inflation, measured by YoY figures, rose by 3.8%, below April's 4.4%, while PCE increased by 0.1% on a monthly basis, lower than the previous report's 0.4%.

Meanwhile, in the UK, the economic docket featured the release of the first-quarter Gross Domestic Product (GDP) figures. The country managed to avoid a recession, as GDP expanded by 0.1% on a quarterly basis. However, high inflation has been impacting households' disposable income, as indicated by the Office for National Statistics (ONS) figures. With inflation remaining around 8.7%, there are expectations that the Bank of England (BoE) might raise rates to 5.5%, as reflected in money market futures. However, there are concerns among investors that higher interest rates could potentially push the UK economy into a recession.

Following the release of the US data, the GBP/USD pair saw an increase from the 1.2640s level to the 1.2690s level as investors started pricing in a less aggressive approach from the Federal Reserve. Consequently, US Treasury bond yields declined, and the US Dollar Index, which measures the value of the dollar against a basket of currencies, dropped by more than 0.50%, reaching 102.769 on Friday.

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