Will UK GDP Data Steer Sterling’s Next Move as Fed Signals Tariff Risks?

The Pound Sterling (GBP) edged lower on Wednesday, May 14, 2025, at 09:02 PM +04, retreating slightly to 1.3293 after peaking at a weekly high of 1.3359, as a lack of major market catalysts left traders focused on the upcoming UK GDP figures. GBP/USD dipped by 0.03%, reflecting a cautious market mood, while the US Dollar Index (DXY) softened to 100.77, trimming earlier gains spurred by the US-China tariff truce. With central bank commentary highlighting inflation and labor market concerns, and key data releases on the horizon, the stage is set for potential shifts in both currencies’ trajectories in the coming days.

The US Dollar’s retreat follows its rally earlier in the week, driven by the 90-day US-China tariff suspension, which reduced duties to 30% on Chinese imports and 10% on US goods, easing trade tensions. However, with markets having largely priced in this development, the DXY fell 0.15%, signaling a pause in the Dollar’s momentum. US Federal Reserve Vice Chair remarks underscored the uncertainty surrounding tariff-driven inflation, noting that while the current 4.25%-4.50% rate is well-positioned, the inflationary impact of tariffs remains unclear, potentially temporary or persistent. Market expectations for Fed rate cuts in 2025 held steady at 52 basis points, despite a modest dip in US inflation reported on Tuesday.

In the UK, recent labor market data showing a cooling in job figures offered some relief to the Bank of England (BoE), which has been wary of wage-driven inflation. A BoE official emphasized the labor market’s unexpected resilience, advocating for steady rates to curb potential price pressures, with the BoE projected to ease policy by 50 basis points by year-end, possibly starting in August. The Pound’s slight pullback reflects a quiet session, but the forthcoming GDP data could either bolster its recent gains or deepen its retreat, depending on the strength of the UK economic outlook revealed in the release.

Looking ahead, Thursday’s US economic data, including the Producer Price Index (PPI), Retail Sales, and a speech from the Fed Chair, will provide further clarity on the Dollar’s direction, while GBP/USD’s technical outlook remains neutral-to-bullish. The pair needs to hold above 1.33 to sustain its upward bias, with a break past 1.3350 potentially targeting the year-to-date high of 1.3443. A drop below 1.33, however, could trigger a pullback toward 1.3200 or even the weekly low of 1.3139, making the upcoming data a pivotal moment for Sterling’s near-term path amid global economic uncertainties.