The British pound (GBP) has significantly strengthened against the US dollar (USD) in recent weeks and is currently trading at about 1.3580 USD, which is close to its highest level since February 2022. This development is mainly due to a combination of positive economic data from the UK and weaknesses in the US dollar.
Reasons for the Strength of the British Pound
- Positive Economic Data: The UK economy showed unexpectedly strong momentum in the first quarter of 2025, with growth of 0.7% compared to the previous quarter. Retail sales and other indicators also signaled robustness.
- Trade Agreement: The announcement of a trade agreement between the UK and the USA in early June further supported confidence in the British currency.
- Bank of England’s Interest Rate Decisions: Despite a rate cut in May, the monetary policy remains restrictive enough to continue controlling inflation. This strengthens confidence in the stability of the pound.
Weakness of the US Dollar
- Disappointing US Economic Data: Key US economic figures for May fell short of expectations, putting pressure on the dollar.
- Uncertainty Due to Tariffs: Court rulings against Trump’s tariffs and ongoing debates about new trade barriers have created uncertainties in the American market. This led to profit-taking in the dollar at times and favored alternative currencies like the pound.
- Loss of Confidence in the Dollar: Analysts view the trade-weighted dollar as significantly overvalued; at the same time, the pound is considered undervalued – another factor contributing to capital flows in favor of the British currency.
Outlook
Despite the recent appreciation, it is expected that the pace of further GBP strengthening will slow down. After significant gains, corrections or consolidations are likely, especially as many positive factors are already priced in. Nevertheless, the trend remains intact: The pound continues to be above its moving average and benefits from structural advantages over the dollar.
The uncertainties surrounding US tariffs and weak economic data are also expected to exert pressure on the dollar in the medium term – as long as no new impulses come from Washington or the economic situation in the US does not significantly improve.
Conclusion:
The British pound is currently showing strength at around 1.3580 USD. Drivers include robust economic data from the UK as well as uncertainties and disappointments in the American market due to weak economic indicators and trade disputes concerning tariffs. The trend remains positive for the GBP/USD pair, even though short-term consolidations are possible.