US Economic Contraction and Inflation Surge Impact GBP/USD

The United States economy experienced an unexpected contraction in the first quarter of 2025, shrinking by 0.3%, according to the US Commerce Department. This marked a significant downturn from the 2.4% growth recorded in the final quarter of 2024 and fell short of economists’ expectations of a modest 0.3% expansion. Compounding concerns, inflation showed signs of reacceleration, with the Q1 price index climbing to 3.7%. This combination of economic contraction and rising prices has fueled fears of stagflation, prompting a shift in market dynamics and impacting currency markets, notably the GBP/USD exchange rate.

The GBP/USD pair, often referred to as “Cable,” declined by 0.51% to 1.3331, reflecting increased demand for the US dollar as a safe-haven asset amid the troubling US economic data. The US Bureau of Economic Analysis reported that the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, rose by 2.6% in March, aligning with expectations but down from February’s 3.0%. Despite this slight easing, the persistent inflationary pressure underscored the challenges facing the US economy, further bolstering the dollar’s appeal against the British pound.

Adding to the economic unease, the ADP National Employment Change data revealed weaker-than-expected job growth in the US private sector. Only 62,000 jobs were added, falling short of the forecasted 115,000 and significantly below March’s 147,000. This disappointing jobs report shifted traders’ attention to upcoming economic indicators, including the ISM Manufacturing PMI and the highly anticipated Nonfarm Payrolls (NFP) data, which are expected to provide further insight into the health of the US economy.

Across the Atlantic, the United Kingdom is navigating its own economic landscape, with expectations of securing a trade deal with the US to avoid 10% tariffs imposed by Washington. Despite recent losses, the GBP/USD pair is poised to close April 2025 with gains of over 3.8%. However, the stagflationary signals from the US have prompted investors to favor the dollar, leading to two consecutive days of declines for the pound.

GBP/USD Price Forecast: Technical Outlook

From a technical perspective, the GBP/USD pair has entered a consolidation phase, trading within the 1.3300–1.3400 range over the past three days. The Relative Strength Index (RSI) remains bullish but shows signs of waning momentum, suggesting that sellers are gaining traction. Should the pair fall below the 20-day Simple Moving Average (SMA) at 1.3316, it could target the 1.3300 level, with further declines potentially testing the 1.3200 mark and the 50-day SMA at 1.2978. Conversely, a breakout above 1.3400 could see the pair challenge the year-to-date high of 1.3443, signaling renewed bullish momentum.

As markets await key US economic data releases, the interplay between economic contraction, persistent inflation, and currency fluctuations will continue to shape the GBP/USD trajectory, with investors closely monitoring both fundamental and technical developments.