The pound in the pair with the dollar is losing ground, despite a fairly strong UK GDP report. In the moment, the GBP/USD pair reacted with an upside move and updated a two-month price high. Buyers marked 1,3593 (the highest price since February 17 this year), but they failed to enter the 36th figure area. The upward price impulse faded almost as soon as it began: during the European session on Thursday the GBP/USD pair reversed to the south and fell to the base of the 35th figure.
Such pair dynamics look illogical, given the green tone of yesterday's report. The UK economy, contrary to gloomy forecasts, demonstrated unexpected resilience and momentum, significantly beating analysts' estimates.
Thus, according to the published data, Britain's GDP in February increased 0.5% month-on-month, with a forecast of 0.1%. That represents a yearly record — the highest reading of the indicator since February last year. In quarterly terms GDP also rose 0.5% (forecast 0.2%)—the strongest reading since May 2025. Here an upward dynamic has formed: the indicator has expanded for a third consecutive month.
It is worth noting that not only headline figures supported the British currency but also structural elements of the report. Unlike previous months, when growth often came from a single sector, the February report showed unanimity across many key sectors. In particular, the services sector grew 0.5%. That matters because services account for about 80% of the UK economy. Wholesale and retail trade, hospitality, and information technology served as the main growth drivers. For example, retail sales rose immediately by 1.4%, which signals a recovery in consumer demand.
Also, the industrial production sector showed positive dynamics, increasing 0.5%. The construction sector moved into the green as well. After a short lull, it showed an impressive—one might say jumpy—increase of 1.0%.
In other words, the report proved genuinely strong, and therefore the current weakening of the British currency appears, at first glance, illogical. Nevertheless, this dynamic results from a number of factors.
First, the market treated the published data as having lost relevance. February figures reflect the economic situation before the recent escalation in the Middle East. Although the initial data recorded in February proved far sturdier than expected, the consequences of the energy crisis, which already erupted in spring, will inevitably show up. Because of high oil prices, GDP growth may slow and inflation may rise again. Against that background stagflation risks have increased, and those risks did not appear in the February report.
Second, the GBP/USD pair fell amid strong macroeconomic data published yesterday in the United States. In particular, the weekly initial jobless claims fell to 207 thousand, while most analysts had forecast a larger rise—to 213 000–215 000. That constitutes a significant drop compared with the revised prior-week reading of 218 000. A weekly fall of 11 thousand became the largest single-week decline since February this year.
It is also important to note the stability of the four-week moving average. Market participants regard this indicator as more representative because it smooths weekly volatility—which is especially relevant given Easter holidays and spring breaks. Thus, the four-week average stood at 209 750 claims. That level lies well below the alarm threshold of 230 000, which indicates an absence of systemic layoff problems. This result suggests that American firms do not lean toward mass layoffs: despite slowing US growth, many employers keep staff on payrolls, which, incidentally, supports consumer confidence.
Another US macro release published yesterday also favored the greenback. The Philly Fed manufacturing activity index jumped to 26.7 (forecast 10.3). The indicator has risen for a fourth consecutive month, and in April it reached its highest value since January last year. Key subindices also showed meaningful increases. For example, the new orders index surged to 33.0 from the prior 8.6, which indicates that regional companies literally have their order books full for the future. The future capital expenditures subindex rose to 35.2, signaling that firms plan to expand and buy equipment. The average workweek index also grew to 7.7, which indicates high capacity utilization. Finally, the paid prices index showed a jump to 59.3. That serves as a signal that inflation in the manufacturing sector has accelerated again—primarily due to logistics and raw material costs.
Although the Philly Fed covers only one region, it shows a high correlation with the ISM manufacturing index, and therefore the release delivered strong support to the US currency.
Thus, the downward dynamic of GBP/USD has a fully justified character. Traders ignored the outdated UK GDP report and concentrated on US data, which sided with the greenback.
But opening any trading positions on the pair right now is categorically not recommended. The reason is that geopolitics will soon return to center stage with all the ensuing consequences.
According to Donald Trump, a new meeting of US and Iranian representatives may take place as soon as this coming weekend. If the second round of negotiations indeed occurs tomorrow or the day after, the market will price in its results on Monday. If the sides reach a deal or agree to keep negotiating, the safe-haven dollar will come under pressure, and interest in risk assets will rise again. In that case the GBP/USD pair will likely retest the boundaries of the 36th figure. But if negotiations fail, the dollar will again take the lead, and GBP/USD will fall into the 34th figure, targeting Kumo support on D1 near 1.3400.
The intrigue remains, and therefore any trading decisions on the pair now look equally risky.
