The UK's economic growth report released today offered support to GBP/USD buyers, although the market's reaction was muted.

Traders are reluctant to open large positions ahead of today's speech by Federal Reserve Chair Jerome Powell — his first since the announcement of a temporary trade truce between the U.S. and China. Market participants remain cautious, which is reflected in reduced volatility across currency pairs. GBP/USD is no exception, especially since today's report has its flaws.

The headline figures landed in positive territory, indicating that the UK economy is in good shape. In March, GDP grew by 0.2% MoM, whereas most analysts had forecast flat growth.

Quarterly data also surpassed expectations: from January to March, the UK economy expanded by 0.7% q/q, following a modest 0.1% growth in Q4 of last year (consensus was 0.5%). On a year-on-year basis, GDP rose by 1.3% in Q1 versus a forecast of 1.2%.

However, the manufacturing and industrial sectors disappointed. Industrial production shrank by 0.7% MoM in March (after a 1.7% increase in February) — the worst reading since July last year. The quarterly figure also fell by 0.7%.

Manufacturing output dropped 0.8% MoM (after a 2.4% surge the previous month) and fell 0.8% YoY (compared to a 0.5% gain previously).

On the positive side, the services sector grew by 0.7% q/q, following a 0.6% increase in February. This indicator has shown consistent growth over the past four months.

Despite some weak spots, the report suggests that the UK economy remains in relatively good shape. This gives the Bank of England (BoE) reason not to rush into further monetary easing — a stance already hinted at by several policymakers. Following the May meeting, Governor Andrew Bailey emphasized that interest rates were not "on autopilot." Catherine Mann, who voted to hold rates (alongside BoE Chief Economist Huw Pill), echoed this sentiment today. She stated that the UK labor market remains strong and warned that new tariffs could spur inflation.

This follows Monday's labor market report, which showed a slight uptick in unemployment (from 4.4% to 4.5%) and a smaller-than-expected rise in jobless claims (5,000 vs. forecasted 22,000). Commenting on the data, Mann acknowledged signs of labor market cooling but called it a "nonlinear adjustment." In her view, monetary policy should remain unchanged in the near term, and the GDP report only strengthens that position.

Traders showed little enthusiasm for the report, largely because the outcome of the BoE's next (June) meeting is already priced in. At its May meeting, the BoE did not signal any imminent rate cuts, maintained a cautious tone, and upgraded its economic forecasts. Today's data simply reinforced expectations that the central bank will leave policy unchanged in June. While the broader path of gradual easing remains in place, markets continue to expect two more rate cuts by year-end.

In other words, today's release increased the odds of a June pause — but that was already baked into prices. Thus, GBP/USD volatility remained subdued.

The pair is now at the mercy of the dollar, which is awaiting today's speech from Fed Chair Jerome Powell. He may comment on the temporary trade truce with China and recent U.S. inflation data. Recall that headline CPI slowed to 2.3% y/y in April, while core CPI held steady at 2.8%. Meanwhile, the PPI decelerated more significantly — headline PPI fell from 3.4% to 2.4%, and core PPI dropped from 4.0% to 3.1%. If Powell downplays market optimism about the trade truce (which already seems to be fading), the dollar could come under renewed pressure, potentially lifting GBP/USD toward the 1.34 area. Conversely, if Powell supports the greenback, the pair could fall toward the 1.32 level — although a decisive break below 1.3200 appears unlikely.

Technical Outlook

On the daily chart, GBP/USD is trading between the middle and lower Bollinger Bands, hovering near the median line, and sitting right at the Tenkan-sen. A breakout above the 1.3310 resistance level (the Bollinger Bands median) would validate long positions, placing the pound between the middle and upper bands, and above all Ichimoku lines — forming a bullish "line parade" signal. The upside target in that case is 1.3430 (the upper Bollinger Band on D1).

Given the current fundamental backdrop, any downward impulses should be treated as buying opportunities. In my view, the dollar remains vulnerable due to stalled U.S.-EU trade talks and the continued delay in launching full-scale U.S.-China negotiations.