Pound sterling price gains momentum as UK GDP surprises to the upside
GBP/USD approaches 1.2500 as UK GDP beats forecasts
The Pound sterling (GBP) extended its gains on Thursday, climbing toward the 1.25 level against the U.S. dollar. The rally was driven by better-than-expected UK Gross Domestic Product (GDP) data, which showed economic growth of 1.4% year-over-year in Q4 2024, surpassing estimates of 1.1%.
On a quarterly basis, the UK economy expanded by 0.1%, defying expectations of a contraction. Additionally, UK industrial and manufacturing production data exceeded forecasts, reinforcing optimism about economic resilience.
However, the Bank of England (BoE) remains cautious about aggressive policy easing. BoE Chief Economist Huw Pill stated that while the central bank is gradually removing monetary restrictions, the fight against inflation is "not yet complete." BoE policymaker Megan Greene also echoed a cautious approach to rate cuts, signaling that inflation persistence remains a concern.
GBP/USD price dynamics (Dec 2024 - Feb 2025) Source: TradingView.
Impact of U.S. economic developments
The British Pound also benefited from risk-on sentiment, fueled by optimism surrounding Russia-Ukraine peace talks. U.S. President Donald Trump confirmed that both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed interest in a ceasefire, prompting investors to move away from safe-haven assets like the U.S. dollar (USD).
Meanwhile, U.S. inflation data for January came in hotter than expected, with headline CPI rising 3.0% year-over-year, above estimates of 2.9%. The core CPI, which excludes food and energy prices, increased to 3.3%, reinforcing expectations that the Federal Reserve (Fed) will maintain its current policy stance. As a result, traders have reduced bets on a June Fed rate cut, with the probability falling to 36% from 50% earlier in the week.
Technical analysis and market outlook
The GBP/USD pair is testing the 50-day Exponential Moving Average (EMA) near 1.25, a crucial resistance level. A daily close above this point could confirm a trend shift, strengthening the case for a move toward the 1.2607 December high. However, failure to hold this level may trigger a retracement toward key support at 1.21.
Investors are now looking ahead to Trump’s upcoming reciprocal tariff announcement and the release of U.S. Producer Price Index (PPI) data, which could influence Federal Reserve policy expectations. If risk sentiment holds and UK economic data remains robust, the Pound Sterling could extend its rally in the near term.
Previously The British Pound showed resilience amid shifting rate cut expectations, with BoE officials emphasizing caution on easing policy. Meanwhile, UK inflation and economic data remain key drivers, influencing GBP/USD movement against a backdrop of global trade tensions and Fed policy shifts.
