The British Pound (GBP) retreated slightly from its recent three-year high against the US Dollar (USD) during Tuesday’s American session, with the GBP/USD pair hovering around 1.3510. This modest pullback follows a short-term rebound in the US Dollar, supported by growing optimism over a potential trade agreement between the United States and the European Union.
Improved risk sentiment has helped stabilize the USD after weeks of downside pressure from fiscal imbalances and the Federal Reserve’s cautious tone. A renewed sense of optimism around transatlantic tariff negotiations has provided the Greenback with some much-needed relief, even as broader structural concerns persist.
Despite the slight dip, the Pound’s overall strength remains largely intact, driven by shifting expectations regarding the Bank of England’s (BoE) policy path. Analysts note that while some of the recent gains in GBP/USD stem from Dollar weakness, the British currency has found independent support from domestic developments.
Michael Brown, a senior strategist at Pepperstone, highlighted that the BoE’s unexpectedly hawkish stance in May, coupled with stronger-than-expected UK inflation data, has led traders to scale back their expectations for further rate cuts. These surprises have led markets to reassess the likelihood of easing later in the year. As a result, the probability of a BoE rate cut in the second half of 2025 has decreased notably.
At its May 8 meeting, the BoE reduced its Bank Rate by 25 basis points to 4.25%. However, updated futures pricing suggests a strong market consensus—over 93% %—that rates will remain unchanged at the next meeting.
In the US, data showed Durable Goods Orders fell sharply by 6.3% in April, primarily due to a plunge in aircraft orders. However, Consumer Confidence saw a solid rebound, climbing to 98.0 in May from 85.7 in April.
Markets now turn to the upcoming FOMC minutes, revised Q1 GDP data, and the core PCE index later this week, alongside ongoing BoE commentary.
Trade Idea:
Sell GBP/USD on rallies near 1.3560, targeting 1.3410, with stop-loss above 1.3590—risk-reward favors USD on data strength.