GBP/USD fell 0.18% on Tuesday as the US dollar strengthened after US Retail Sales data. The pair traded near 1.3507 after a daily high of 1.3539.
US markets were mixed, with equities higher on earnings reports. Reports about a possible end to the US–Iran conflict continued, while Tehran had not confirmed support for talks in Islamabad.
US Retail Sales rose 1.7% month-on-month in March, up from 0.7% and above the 1.4% forecast. Annual sales growth was 4%, matching the prior month, with higher petrol spending and tax refunds supporting demand.
ADP Employment Change (4-week average) increased to 54.8K from 39K. The data pointed to resilience in US labour conditions.
In the UK, unemployment fell to 4.9% in the three months to February from 5.2%. Average earnings excluding bonuses eased to 3.6% year-on-year from 3.8%, with commentary linking the unemployment drop to more students not seeking work.
Fed chair nominee Kevin Warsh said he does not support forward guidance and described rates and the balance sheet as key tools. He also said the President had not asked him to commit to any rate decision.
Next, the US releases jobless claims, while UK March inflation is expected at 3.2% for core CPI and 3.3% for headline CPI. Technically, GBP/USD held near 1.3505, with support around 1.3419 and resistance near 1.3850–1.3869.
We are looking at a very different picture for GBP/USD compared to this time in 2025, when the pair was trading around 1.3500. Back then, a powerful 1.7% monthly jump in US retail sales was driving dollar strength. Today, with the pair trading near 1.2850, we see signs of a cooling US economy, as the most recent retail sales figures for March 2026 showed a much weaker 0.4% increase.
A year ago, the concern was a cooling UK labor market, with average earnings growth slowing to 3.6% and taking pressure off the Bank of England. Now, persistent inflation is the dominant theme, with the latest CPI print for March 2026 coming in at 3.2%, still well above the central bank’s 2% target. This puts pressure on the Bank of England to maintain its restrictive stance, creating a potential floor for sterling.
The outlook for Federal Reserve policy has shifted dramatically from the hawkish expectations we saw in 2025 with nominee Kevin Warsh. While the focus then was on aggressive tools to fight inflation, today’s market is pricing in the possibility of future rate cuts. The recent Non-Farm Payrolls report, which showed a softer-than-expected 180,000 jobs added, supports the view that the US economy is finally slowing down.
Given this divergence between a potentially restrictive Bank of England and a softening Federal Reserve, we believe traders should consider strategies that benefit from potential GBP/USD upside. Buying call options or implementing bull call spreads could be effective ways to gain exposure while managing risk. The old resistance level near 1.3850 from 2025 now looks like a very distant long-term target, with focus shifting to more immediate hurdles.
