In the Asian trading session on Monday, the GBP/USD pair continued its upward trajectory for the second consecutive day, hovering around 1.2740, marking near two-month highs. This surge in the GBP/USD exchange rate can be attributed to the prevailing risk-on sentiment, despite waning expectations of Federal Reserve interest rate cuts.
Notably, both the UK and US markets are closed on Monday, with the UK observing the Spring Bank Holiday and the US commemorating Memorial Day.
Last Friday, the University of Michigan released its 5-year Consumer Inflation Expectations for May, which saw a slight easing to 3.0%, falling below the forecasted 3.1%. Despite the Consumer Sentiment Index being revised upward to 69.1 from an initial reading of 67.4, it remained at its lowest level in six months. These figures likely fueled investors’ concerns about potential rate cuts by the Federal Reserve, consequently weakening the US Dollar and providing support to the GBP/USD pair.
The CME FedWatch Tool indicated a decrease in the probability of a 25 basis-point rate cut by the Federal Reserve in September, dropping to 44.9% from 49.0% the previous week.
Meanwhile, in the UK, traders reacted to lower-than-expected Retail Sales data released on Friday. April witnessed a significant 2.3% decline in the monthly volume of retail sales, far below the anticipated 0.4% downturn. On an annual basis, sales contracted by 2.7%, compared to the expected 0.2% decrease. Additionally, GfK Consumer Confidence softened to a reading of -17 in May, slightly better than the anticipated -18 reading and the previous -19.
Moreover, the UK’s annual inflation rate showed signs of moderation, edging closer to the Bank of England‘s target of 2%. This moderation has tempered investors’ expectations of a rate cut by the Bank of England in June, potentially strengthening support for the Pound Sterling (GBP).
