GBP Holds Steady, USD Faces Potential Strength, EUR Weighed by ECB’s Rate Cut Speculation.

• GBP clings near 1.2500 against USD, buoyed by improved UK economic outlook despite steady BoE rates.
• USD expected to strengthen following positive 1Q US PCE data, supported by higher rates and diminishing equities.
• Concerns over high service sector inflation in UK prompt cautious optimism from BoE policymakers regarding rate cuts.
• Speculation surrounding ECB rate cut in June adds uncertainty for EUR, while divergence among BoE members adds volatility.
• GBP outlook remains favorable against EUR amid ECB’s signals of earlier rate cuts.

GBP: The Pound Sterling (GBP) maintains its position near 1.2500 against the US Dollar (USD) in London’s Friday session, buoyed by encouraging survey data indicating an improved economic outlook for the UK. Despite the Bank of England (BoE) holding interest rates steady, the preliminary PMI report for April showcased robust activity in the services sector, supporting overall economic growth. However, concerns linger regarding high service sector inflation, prompting cautious optimism from BoE policymakers regarding future rate cuts.

USD: Following a brief surge in the aftermath of positive 1Q US PCE data, the US Dollar (USD) is anticipated to strengthen further, fueled by higher rates and diminishing equities. Despite a significant slowdown in US 1Q growth, core PCE inflation surged, suggesting potential market recalibration and a reduced likelihood of further rate cuts. Market dynamics favor a stronger dollar, with expectations leaning towards only one 25bp rate cut by year-end.

EUR: Speculation surrounding a potential rate cut by the European Central Bank (ECB) in June has led to uncertainty for the Euro (EUR). While the ECB’s decision may influence the currency’s performance, divergence in views among Bank of England members adds another layer of volatility to the market. The pound’s outlook against the euro remains favorable, especially as the ECB signals earlier rate cuts.