GBP/USD Dips Below 1.33 as U.S. Consumer Gloom and Inflation Fears Bolster Dollar

The GBP/USD currency pair slipped below the 1.33 mark, ending the week with a modest loss of over 0.24%, as the U.S. dollar gained strength amid deteriorating consumer sentiment and rising inflation expectations in the United States. With no major economic data released in the UK on Friday, the pound struggled to find direction, leaving traders to focus on U.S. indicators that painted a pessimistic picture of consumer confidence. The pair traded at 1.3276, down 0.39% during the North American session, reflecting the dollar’s resilience in the face of mixed economic signals.

U.S. consumer sentiment took a sharp hit, with the University of Michigan’s Consumer Sentiment Index for May dropping to 50.8, its lowest since July 2022, missing expectations of a rise to 53.8 from April’s 52.2. Compounding this, inflation expectations surged, with one-year projections climbing from 6.5% to 7.3% and five-year forecasts rising from 4.4% to 4.6%. This unexpected spike in inflation expectations fueled the dollar’s recovery, as markets interpreted it as a signal that the Federal Reserve would likely maintain its current interest rate stance to curb inflationary pressures.

Mixed U.S. economic data further shaped market dynamics. Import prices rose unexpectedly in April, driven by higher costs for capital goods and a weaker dollar, while housing data presented a split picture: housing starts increased, but building permits fell to a near two-year low. Despite signs of slowing disinflation, Federal Reserve officials expressed caution about easing monetary policy, citing uncertainties around trade policies and tariffs. Recent retail sales data showed a continued slowdown, though projections suggest the U.S. economy could still grow at a 2.4% rate, slightly down from earlier estimates.

In the UK, the absence of significant economic releases left the pound vulnerable to external pressures. Looking ahead, the UK’s economic calendar will be packed with key data, including inflation figures, flash PMIs, and retail sales, alongside a UK-EU meeting. These releases could provide fresh momentum for the pound, particularly if they signal resilience in the UK economy. In the U.S., markets will closely watch upcoming housing data and a series of Federal Reserve speeches for clues on future policy moves.

From a technical perspective, the GBP/USD’s drop below 1.33 signals potential for further declines. If sellers push past the May 15 low of 1.3248, they could target the 50-day Simple Moving Average at 1.3112, with the 1.3000 level as the next major support. However, if buyers manage to reclaim 1.33, they could aim for 1.3350, with a break above potentially exposing the year-to-date peak at 1.3443. As both the U.S. and UK prepare for critical economic updates, the GBP/USD pair remains at a pivotal juncture, with global trade uncertainties and monetary policy decisions likely to drive its next moves.