British Pound Forecast: GBP/USD Navigates Key Economic Data on Both Sides of the Atlantic

GBP/USD Key Points

• Today’s economic data paints a mixed picture for the UK economy and a resilient one for US consumers
• A big beat in US retail sales could contribute to keeping the Fed on the sidelines through the summer, even if Kevin Warsh is ultimately as the next Chairman of the Fed.
• GBP/USD’s bullish flag pattern hints at a continuation toward 1.37+ if 1.3600 resistance is broken.

Traders, and seemingly top policymakers, appear eager to move on from the US-Iran conflict pending progress in peace talks scheduled for tomorrow ahead of President Trump’s deadline and shift the focus back to economic data. To be sure, there may still yet be another flare-up in the Middle East, but for today, economic data is driving markets.

On that front, we had two traditional economic reports of note this morning, and they paint a mixed picture for the UK economy and a resilient one for US consumers.

The latest UK labor market report was the more mixed of the two, showing slower job growth but a surprise drop in the unemployment rate edged down to 4.9%. Crucially, this reading relates to February;  the early March payroll estimate was down -11K on the month, vacancies dropped to 711K, and regular pay growth slowed to 3.6%, with real regular pay up only 0.2%, showing the potential impact of the war on the UK jobs market. For traders, the mix of easing domestic labor-cost pressure and a gradually cooling jobs market should be broadly supportive of Bank of England rate-cut expectations in the coming months, though perhaps not necessarily in the BOE meeting next week.

By contrast, the data out of the US was more encouraging. US retail sales delivered a stronger-than-expected March print, showing resilient consumer spending even as inflation pressure from energy has intensified. Headline retail sales rose +1.7% m/m in March after a revised 0.7% gain in February, the strongest increase in more than 3 years. Core retail sales, which filters out food and energy prices, also rose by more than expected at 1.9% m/m.

The continued resilience of the US consumer in the face of the ongoing conflict in the Middle East is among the signs that could keep the Federal Reserves on the sidelines throughout the summer, even if President Trump’s handpicked Fed Chairman pick, Kevin Warsh, is ultimately confirmed to lead the central bank.

British Pound Technical Analysis: GBP/USD 4-Hour Chart

Source: Tradingview, StoneX

Turning our attention to the chart at the intersection of these two reports, GBP/USD continues to consolidate above 1.3500 as we go to press. After an impressive 400-pip rally to start the month, the pair’s recent sideways price action creates a “bullish flag” pattern on the 4-hour chart. For the uninitiated, this technical setup is typically seen as a continuation pattern, with the potential for an extension to the upside if/when the top of the flag is broken.

In this case, the key area to watch is around 1.3600, with a move above that level setting the stage for a rally to 1.37 or 1.38 if we do indeed see a breakout. On the other hand, negative headlines out of Iran could still revive the US dollar’s safe haven bid, with a drop through support in the 13460-80 zone hinting at a deeper retracement below 1.3400.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX