GBP/USD steadied near 1.3520 in Asian trading on Thursday after three straight daily declines. Markets are waiting for the UK’s preliminary first-quarter 2026 GDP release, plus Industrial and Manufacturing Production figures later in the day.
The pair stayed stable as the US Dollar held firm, with trading cautious during the meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing. Attention later turns to the US April Retail Sales report.
Reports say the US and China are considering a framework to cut tariffs on about $30 billion of goods, excluding items linked to national security. The talks come amid the war in Iran, while the US has added sanctions on entities involved in selling Iranian oil to China and has warned banks that support those transactions.
US wholesale inflation data also supported the Dollar. The Producer Price Index rose to 6.0% year-on-year in April from 4.3% in March, above the 4.9% forecast.
On a monthly basis, PPI increased 1.4% after 0.7% previously, exceeding the expected 0.5% rise.
With GBP/USD currently stable, the immediate focus should be on the UK’s Q1 GDP figures due today. We should be prepared for increased volatility, as forecasts anticipate very modest growth of just 0.1% for the quarter. Considering the UK’s sluggish performance throughout 2025, any data that misses this low expectation could trigger a sharp move downwards, making short-dated put options on the pound an attractive hedge.
The most significant factor for the coming weeks is the unexpectedly high US inflation, with the Producer Price Index hitting 6.0%. This data, combined with last month’s Core CPI which remained stubbornly above 4.0%, strongly suggests the Federal Reserve will maintain its hawkish stance. We saw a similar dynamic in 2023, where persistent inflation forced the Fed into further action, ultimately strengthening the US dollar against its peers.
While the meeting between US and Chinese leaders may seem positive, the proposed $30 billion tariff reduction is minor compared to the more than $600 billion in goods traded annually. The market’s caution is justified, as this small step is overshadowed by escalating tensions around Iran. This ongoing geopolitical risk is keeping the US dollar firm as a safe-haven asset.
Given the conflicting economic and political signals, overall market uncertainty has risen, pushing the VIX volatility index towards 23. This environment suggests buying volatility may be a sound strategy, perhaps through long straddles on equity indices. For currency traders, the dominant theme of US dollar strength points towards building positions that benefit from a falling GBP/USD, particularly if UK economic data continues to underwhelm.
