GBP/USD drops as US economy shrinks, inflation holds firm

• US economy contracts 0.3% in Q1, missing forecasts and raising stagflation concerns.
• Inflation accelerates with Q1 price index at 3.7%, Core PCE at 2.6% in March.
• ADP jobs data disappoints; traders shift focus to NFP and ISM Manufacturing PMI.

The Pound Sterling tumbled against the US dollar as the economy in the United States contracted, as revealed by Gross Domestic Product (GDP) figures for Q1 2025. At the time of writing, the GBP/USD trades at 1.3331, down 0.51%

GBP/USD falls 0.51% to 1.3331 as weak US growth and sticky prices lift demand for the Greenback

The US Commerce Department showed that GDP contracted by -0.3% in Q1 2025, down from 2.4% in the last quarter of 2024 and missing the consensus of a modest 0.3% growth. Meanwhile, a measure of prices for the same period rose sharply by 3.7%, indicating a reacceleration of inflation.

Recently, the US Bureau of Economic Analysis (BEA) showed that the Fed's preferred inflation gauges the Core Personal Consumption Expenditures (PCE) Price Index in March expanded by 2.6% as expected by economists and down from 3% reached in February.

Other data showed that US private companies hired fewer people than estimated, according to ADP National Employment Change data. The data showed that 62K people were employed, below forecasts of 115K and March's 147K.

Across the pond, the UK is expected to reach a deal with the US and doge 10% tariffs imposed by Washington.  

Cable is expected to end April with gains of over 3.8%. Nevertheless, recently released data in the US painting a stagflationary scenario prompted investors to buy the Greenback, as the GBP/USD extends its losses to two straight days.

This week, the US economic docket will feature the ISM Manufacturing PMI and the release of the always important Nonfarm Payrolls data.

GBP/USD Price Forecast: Technical outlook

The GBP/USD has shifted gears and consolidated within the 1.3300 - 1.3400 range for the last three days. Sellers continue to gather steam as shown by the Relative Strength Index (RSI), which despite being bullish has cleared the latest trough, hinting that momentum is shifting.

If GBP/USD clears the 20-day Simple Moving Average (SMA) at 1.3316, it will be possible to challenge 1.3300. A breach of the latter will expose the 1.3200 mark, followed by the 50-day SMA at 1.2978.

On the other hand, bulls driving the exchange rate past 1.3400, paves the way to re-testing the year-to-date (YTD) high of 1.3443.