GBP/USD Climbs Beyond 1.3500 to a Three-Year Peak on Robust UK Retail Sales and Dollar Weakness

Pound Soars to Highest Level Since February 2022

The GBP/USD pair surged past 1.3500, reaching 1.3538 on Friday, May 23, 2025, marking its highest level since February 2022 and gaining nearly 0.80% during the U.S. trading session. The pound’s rally was fueled by a combination of strong UK retail sales data and a broadly weakened U.S. dollar, pressured by renewed trade tensions and fiscal concerns. The pair has maintained upward momentum over the past five days, reflecting a resilient UK economic outlook against a backdrop of global uncertainties.

UK Retail Sales Outperform Expectations

UK retail sales data, released by the Office for National Statistics, showed a robust 1.2% month-on-month increase in April, far exceeding the anticipated 0.2% and rebounding from March’s revised 0.1% rise. On an annual basis, sales jumped 5%, surpassing the 4.5% forecast and accelerating from March’s 2.6%. This strong performance underscored the resilience of UK consumers despite global trade concerns. However, mixed signals emerged from Thursday’s S&P Global Composite PMI, which rose to 49.4 from 48.5, indicating a slower contraction in private-sector activity. The Services PMI returned to growth at 50.2, up from 49.0, while the Manufacturing PMI slipped to 45.1 from 45.4, signaling ongoing challenges in manufacturing.

Inflation and Policy Outlook

Wednesday’s inflation data revealed heightened price pressures, with headline CPI rising to 3.5% and core CPI climbing to 3.8% from 3.4% in March. Despite these elevated levels, early signs of economic recovery suggest a complex but resilient UK economy. Neil Birrell, Chief Investment Officer at an asset management firm, noted that persistent inflation and steady growth reduce the likelihood of imminent interest rate cuts by the Bank of England (BoE). The BoE is expected to maintain current rates at its upcoming meeting, balancing inflationary pressures with cautious optimism about growth.

Dollar Falters Amid Tariff Threats

The U.S. dollar faced significant headwinds, with the U.S. Dollar Index (DXY) dropping to around 99.00. President Donald Trump’s announcement of a proposed 50% tariff on EU imports starting June 1, alongside a 25% tariff on non-U.S.-made iPhones, intensified global trade tensions and fueled a risk-off market sentiment. These measures, coupled with ongoing U.S. fiscal uncertainties, weakened the dollar across major currencies, further supporting the GBP/USD pair’s upward trajectory.