The British pound rose above $1.356, approaching its highest level since February 2022, as a wave of improved global sentiment lifted risk-sensitive currencies.
Sterling strengthens to over three-year high
The move was largely driven by news that U.S. President Donald Trump had postponed the implementation of 50% tariffs on EU imports until July 9, easing immediate fears of a transatlantic trade escalation. The delay provided relief across global markets and boosted investor appetite for assets linked to open, developed economies such as the UK, which had already been benefiting from stronger-than-expected domestic economic data.
On the home front, the pound found additional support from robust retail sales figures, with data showing a 1.2% increase in April—marking the fourth consecutive monthly gain. The sustained rise in consumer spending underscored the resilience of British households in the face of rising taxes, higher interest rates, and lingering uncertainty over global trade. Analysts noted that solid wage growth and falling energy prices likely contributed to the upbeat retail performance, painting a more optimistic picture of underlying economic momentum.
However, the inflation outlook remains a point of concern. The UK's consumer price index rose by 3.5% year-over-year in April, remaining stubbornly above the Bank of England’s 2% target and exceeding market expectations. Core inflation, which excludes food and energy, also showed signs of persistence, complicating the central bank’s path forward. While some policymakers have signaled growing confidence that inflation will ease in the coming months, the data has kept markets divided on the timing and pace of rate cuts.
Traders price in a 50% cut by the BoE
Currently, traders are pricing in around a 50% probability that the Bank of England could deliver a rate cut by August, with a second cut potentially arriving before the end of the year. Much will depend on incoming inflation and wage data, as well as the broader global economic environment. For now, the pound continues to benefit from a relatively hawkish policy stance compared to peers like the European Central Bank, which is expected to ease sooner.
Meanwhile, UK financial markets are set to pause on May 26 due to a public holiday, potentially leading to lighter trading volumes and heightened sensitivity to external headlines early in the week.
