The British Pound moved higher against the US Dollar on Friday as improving market optimism over a possible peace agreement between the United States and Iran helped offset disappointing economic data from the United Kingdom.
The GBP/USD pair climbed toward the 1.3430 level after recovering from lows near 1.3300 seen on Thursday. Traders are now closely watching the important 200-day Simple Moving Average near 1.3415, which is acting as a key technical level for the currency pair.
Investor sentiment improved after US President Donald Trump said negotiations between the United States and Iran had made significant progress and that a peace agreement could be reached within days. Iranian officials responded more cautiously but acknowledged that a deal now appears closer than before.
The positive global market mood helped support the British Pound even though fresh UK economic data painted a weaker picture of the economy.
Figures released by the UK Office for National Statistics showed that the British economy contracted by 0.1% in April after growing 0.3% in March.
Industrial Production also disappointed, remaining flat compared to expectations for a slight increase. However, Manufacturing Production provided some positive news, rising by 0.4% despite forecasts predicting a decline.
In the United States, inflation-related data released on Thursday also influenced currency markets. The Producer Price Index (PPI) showed factory-gate inflation accelerated to its highest annual pace in more than three years.
However, core inflation — which excludes volatile food and energy prices — remained steady and came in lower than market expectations. This eased concerns that rising energy prices would force the Federal Reserve to raise interest rates again.
Lower expectations for additional US rate hikes reduced support for the US Dollar and helped the Pound recover.
Investors are now awaiting the release of the US Michigan Consumer Sentiment Index later on Friday. Economists expect consumer confidence in the United States to remain weak because of the continued high cost of living, which could place further pressure on the US Dollar if the data disappoints.
