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What’s happening: The British pound edged higher against the US dollar on Thursday as investors digested the latest economic data.
What happened: The GBP/USD forex pair surged to its strongest level since 2022 on Wednesday, as the UK improved its relations with the US and the Eurozone.
Hot inflation data from the UK eased speculations of rate cuts by the Bank of England, providing a further boost to the sterling.
Why it matters: The UK became the first nation to ink a trade agreement with the US following President Donald Trump’s announcement of tariffs. The nation also entered into various fresh deals on trade and defence with the European Union.
Improving relations with the US and the Eurozone provided a boost to the British currency. Higher inflation data from the UK lent further support to the pound this week. The annual inflation rate surged to 3.5% in April, compared to 2.6% in the previous month. With this, inflation in the UK reached its highest level since January 2024.
Higher-than-expected inflation increased prospects of the Bank of England slowing its pace of interest rate cuts going ahead. The UK central bank had slashed its benchmark interest rate by a quarter point to 4.25% earlier this month, with two officials recommending a bigger rate cut.
Data released on Thursday showed that the downturn in business activity in the UK eased during May, lowering concerns over the impact of higher US tariffs. The S&P Global UK Composite PMI rose to 49.4 in May, from 48.5 in the previous month and came in better than market estimates of 49.3. UK services PMI climbed to the expansion zone, reaching 50.2 in May, from 49 in April. Manufacturing PMI declined to 45.1 in May, from 45.4 in the previous month.
Strength in the US dollar arrested gains in the GBP/USD forex pair on Thursday. The dollar index, which measures the greenback’s performance versus a basket of major peers, added more than 0.3% to reach 99.96.
The GBP/USD pair rose to 1.3418 on Thursday, after hitting 1.3468 in the previous session, the highest level in more than three years. The GBP/EUR rose to 84.08 pence per euro on Thursday.
What to watch: Investors await the release of economic reports on CBI distributive trades, car production and Nationwide housing prices next week. Tariff-related announcements from the US and comments from BoE members regarding the central bank’s monetary policy will also remain in focus.
Context: Equity markets in Europe settled lower on Thursday as investors responded to private sector activity data.
Details: Data released on Thursday showed the HCOB Eurozone Composite PMI declined to 49.5 in May, from 50.4 in the previous month. The figure not only missed market estimates of 50.7 but also signalled the first contraction in the region’s private sector activity in 2025.
Although Eurozone’s manufacturing PMI improved to 49.4 in May, from 49.0 in April, services PMI slipped to the contraction zone, declining to 48.9 in May, from 50.1 in the previous month.
Concerns related to the lack of progress in trade deals and US President Donald Trump’s new tax bill also weighed on global market sentiment.
The STOXX Europe 600 Index fell 0.64% to close at 550.27 on Thursday. UK’s FTSE 100 declined by 0.54% to settle at 8,739.26, while Germany’s DAX 40 and France’s CAC 40 shed 0.51% and 0.58%, respectively.
Luxury giants and auto producers were among the worst performers on Thursday. Shares of both Hermes and LVMH fell around 2%, while Stellantis’ stock dipped 4% during the session. On the other hand, shares of Generali gained slightly after the company reported results for the January quarter.
What to watch: Investors await the release of economic data on Eurozone’s negotiated wage growth (1300 UAE Time) today. Negotiated wages in the Eurozone, which rose by 4.12% year-over-year in the fourth quarter easing from a 31-year high of 5.43% in the previous quarter, are expected to increase by 4% year-over-year in the first quarter.
Other Markets: US trading indices closed mixed on Thursday, with the Dow Jones index and S&P 5000 down by 0.01% and 0.04%, respectively, and the Nasdaq 100 up by 0.15%.
G7 finance chiefs said further sanctions would be imposed on Russia in case efforts to achieve a ceasefire failed. The news sent the safe-haven US dollar index lower in forex trading this morning.
Japan’s annual inflation rate came in at 3.6% in April, unchanged from the previous month. The region’s inflation rate remaining at its lowest level since December 2024 lent support to the JPY/USD forex pair.
New Zealand’s retail sales grew 0.8% in the first quarter, versus 1% in the previous period. The latest reading topping market estimates of a 0.1% gain sent the NZD/USD pair higher in forex trading this morning.
South Korea’s producer inflation eased to 0.9% year-over-year in April, from 1.3% in the previous month, lending support to the KRW/USD forex pair.
Argentina’s retail sales jumped by 86.7% year-over-year in March, accelerating from the 80.7% surge recorded in the previous month, which sent the ARS/USD pair higher in forex trading this morning.
Turkey’s tourist arrivals (1200 UAE Time) and foreign exchange reserves (1530 UAE Time), India’s bank loan growth (1530 UAE Time), deposit growth (1530 UAE Time) and foreign exchange reserves (1530 UAE Time), Mexico’s balance of trade (1600 UAE Time) and current account (1900 UAE Time), Canada’s retail sales (1630 UAE Time), as well as US new home sales (1800 UAE Time), Baker Hughes oil rig count (2100 UAE Time) and Baker Hughes total rigs count (2100 UAE Time).
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