Sterling Mostly Holds Strength Despite Lower Inflation

Tuesday’s job report was quite strong on the whole. Recent gains by cable come in the context of tariff-driven instability and general weakness for the US dollar. This article summarises recent British economic news then looks briefly at the charts of GBPUSD and GBPJPY.

The rate of British annual headline inflation declined slightly more than expected last month to 2.6%:

The forecast by markets and the Bank of England (‘BoE’) had been 2.7%. This release suggests that a sustained resurgence by inflation is less likely compared to the beginning of the year; the BoE now seems to have more options to cut rates if appropriate. Participants now seem to be pricing in at least three single cuts in the rest of 2025 with around a 50% probability of a fourth in December.

This doesn’t seem to have affected the pound very negatively because other major central banks such as the Fed and ECB are also likely to continue cutting this year. The British job report for February-March as released on Tuesday 15 April was also broadly positive:

Claimant count change in March was 18,700 against more than 30,000 expected while average earnings excluding bonus remained very close to 6%. Lower inflation with a broadly positive job market means greater flexibility for the BoE to keep rates higher for longer if need be without pressure to cut quickly in an attempt to support employment.

Tariffs haven’t dominated the news for the pound or other British instruments in recent weeks as they have in other countries primarily because British exports are primarily services and, politically, Britain is probably less vulnerable to escalation than most other countries. Headlines on 15 April that American Vice President Vance hopes for a ‘great’ trade deal with the UK were positive for sentiment. Traders are looking ahead to British PMIs and retail sales from 23 April.

Cable Seems Ready to test $1.33

As of 16 April cable was on track to complete its longest unbroken round of gains in nearly a year, having risen to seven-month highs. The outlook for rates doesn’t obviously favour either currency, with both the Fed and the Bank of England expected to cut at least twice more this year and possibly three or four times. Recent lower confidence in the dollar amid flip-flopping on tariffs seems unlikely to reverse soon as considerable capital has moved out of the USA and into other markets.

As with other major forex pairs in recent weeks, the medium-term resistance isn’t obvious as a result of the strength of recent movement. September 2024’s $1.34 is a possible candidate but it’s questionable whether the price will continue directly there given the clear overbought signal from Bollinger Bands. The 50 SMA from Bands seems to be a clear dynamic support. It’s also important to monitor the weekly close: if this is below $1.32, consolidation or maybe a retracement lower seem more likely than continuation next week, but that depends on data (PMIs and retail sales) and sentiment too.

Pound-yen Consolidates Above ¥187

The latest British job report on 15 April was generally quite positive with growth in earnings remaining high and claimants increasing less than expected. The focus for the yen remains on upcoming trade talks between Japan and the USA while monetary policy still seems somewhat uncertain. The Bank of Japan is likely to continue with ‘wait and see’ although some participants expect a hike in September.

¥186 seems to be the main short-term support based on the fairly strong reaction on 9 April. However, that hasn’t been clearly sustained since then although that day’s upward engulfing candlestick would have suggested possible ongoing gains. Japanese balance of trade late on 16 April GMT is unlikely to have a significant influence on the chart unless it’s particularly surprising. The 20 and 50 SMAs just below ¥191 probably mean resistance in that area. Upcoming British data like PMIs and retail sales could usher in a clearer direction.

This article was submitted by Michael Stark, an analyst at Exness.

The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.