GBP/USD exchange rate hits more than 3-year high in May
The pound dollar exchange rate jumped to within touching distance of the 1.34 benchmark on 6 May after news of a UK-India trade deal encouraged investors, along with hopes for a UK-EU agreement. Meanwhile, the dollar was pressured by ongoing concerns about the impact of tariffs on the US economy.
The pair dropped below 1.33 the following day after the Federal Reserve held interest rates steady and Chair Jerome Powell signalled caution, prompting investors to dial back expectations for a rate reduction in June.
The pound firmed against the dollar on 8 May despite the Bank of England’s (BoE) decision to cut interest rates, as markets reduced bets on more reductions this year. The hawkish outlook was triggered by two policymakers voting to leave rates unchanged and the BoE only modestly lowering its inflation forecast.
The pound dollar rate slid to a one-month low in the 1.31 mid-range on 12 May after the US and China agreed to reduce tariffs by 115% over the next 90 days – a major breakthrough that turbocharged the US currency.
The pound rallied against the dollar over the following two days amid cooling US inflation and investor optimism ahead of a key UK-EU summit, propelling it into the 1.33 mid-range.
The pound rose to within a whisker of the 1.34 level versus the dollar on 19 May, following news of a fresh UK-EU agreement easing checks on food, livestock, and agricultural goods. Meanwhile, the dollar faced ongoing headwinds after Moody’s stripped the US of its AAA credit rating.
The pound dollar rate spiked to a three-year high in the 1.34 mid-range on 21 May following a surge in UK inflation, which jumped by more than expected in April to 3.5% – its highest rate in more than a year.
The pair touched a fresh high on 23 May after it broke through the 1.35 resistance level. The pound’s move higher was assisted by an increase in UK retail sales volumes for April.
It scaled another high, a fraction below 1.36 on 26 May, as reduced bets on BoE rate cuts and some brighter economic data lifted the mood.
The pound slipped to around 1.342 versus the dollar on 28 May amid Trump’s delay of tariffs and a US federal court ruling that he overstepped his authority in introducing retaliatory tariffs – trade developments that supported the US currency.
The pound dollar rate recovered the following day, falling a fraction short of 1.35 after a risk-on mood and downbeat data caused the US currency to slump.
The pound dollar exchange rate ended the month at around 1.346.
GBPUSD: 3-Month Chart
Looking ahead
The BoE is widely expected to lower interest rates on 8 May, in response to cooling UK inflation. If this is priced into the market, downward pressure on the pound will be limited.
Influential data from the UK economy in May: ILO Unemployment Rate (13 May), Average Earnings (13 May), GDP (15 May), Consumer Price Index (21 May), S&P Global/CIPS Composite PMI (22 May), Retail Sales (23 May).
The dollar could find support if, as expected, the Federal Reserve leaves US interest rates untouched on 7 May. The US central bank has signalled that it may be too early to cut rates amid economic uncertainty and ahead of data that will provide a clearer picture of the economic impact of tariffs.
Influential data from the US economy in May: ISM Manufacturing New Orders Index (1 May), Nonfarm Payrolls (2 May), ISM Services PMI (5 May), Consumer Price Index (14 May), Retail Sales (15 May), Producer Price Index excluding Food & Energy (15 May), Michigan Consumer Sentiment Index (16 May), S&P Global Composite PMI (21 May), GDP (29 May).