The recent fluctuations in the GBP to USD rate have been notable. GBP/USD surged after the lackluster NFP but jumped after the BOE meeting yesterday, despite increasing dovish signals. Today, the UK Q1 and March GDP numbers which were released earlier, were under scrutiny by the markets after BOE governor Bailey left the fate of rate cuts to the data, and today we had the first major economic report from the UK, although it is a bit outdated.

GBP/USD Chart H4 – Bouncing Off the 100 SMA

The Bank of England (BoE) is moving closer towards rate cuts, as indicated by a downward revision to inflation predictions, but the addition of cautious language regarding forthcoming data releases leaves everything on hold again. This suggests that the BoE is closely monitoring developments and may consider a rate cut in June if inflation readings surprise to the downside, however the odds are slim, and markets are leaning more to an August rate cut.

Governor Bailey’s remarks did indicate that a rate decrease in June cannot be ruled out and that the BoE may cut more than currently forecasted by the market, further underscore the dovish tone of the BoE’s stance. But after all, these are just small point, so the overall picture from the BOE remains an unclear future for the policy and for the GBP. Earlier today we had the UK Q1 and March GDP reports.

UK Q1 and March GDP Report

• Q1 preliminary GDP +0.6% vs +0.4% q/q expected
• Q4 of 2023 GDP was -0.3%

• March monthly GDP +0.4% vs +0.1% m/m expected
• February +0.1%; revised to +0.2%
• Services +0.5% vs 0.0% m/m expected
• Prior +0.1%; revised to +0.3%
• Industrial output +0.2% vs -0.4% m/m expected
• Prior +1.1%; revised to +1.0%
• Manufacturing output +0.3% vs -0.4% m/m expected
• Prior +1.2%
• Construction output -0.4% vs +0.5% m/m expected
• Prior -1.9%; revised to -2.0%

• Services +0.40%
• Production +0.03%
• Construction -0.03%

The UK economy is off to a strong start in the first quarter of the year, with solid performance in March exceeding expectations. This positive momentum, particularly in the services sector, is contributing to a stronger headline reading for overall GDP in Q1. Additionally, the higher revision to February’s numbers further supports the narrative of economic resilience.

If the Bank of England (BOE) considers delaying rate cuts in light of this robust economic performance, it could help reinforce the narrative of economic stability and recovery. The strong output from the services sector is a significant contributor to the overall GDP growth, highlighting the sector’s importance in driving economic expansion.

GBP/USD Live Chart