GBPUSD: BUY 1.3315, SL 1.3250, TP 1.3400 | 20 May 2025

GBPUSD:

The GBP/USD pair demonstrated resilience by recovering from the previous session's losses, trading in the vicinity of the 1.3300 level during the Asian session on Monday. The recovery was primarily driven by renewed pressure on the US dollar (USD) following Moody's Investors Service's downgrade of the US credit rating by one notch, from Aaa to Aa1. The agency has cited rising debt levels and the increasing burden of interest payments as the main reasons for concern.

This move follows previous downgrades by Fitch Ratings in 2023 and Standard & Poor's in 2011. Moody's has forecast that the US federal debt will rise to approximately 134 per cent of GDP by 2035, up from 98 per cent in 2023. The federal budget deficit is projected to widen to almost 9% of GDP, driven by higher debt service costs, increased social spending and lower tax revenues.

A number of weak US economic indicators have reinforced expectations of rate cuts by the Federal Reserve this year. The University of Michigan's consumer sentiment index fell sharply to 50.8 in May from 52.2 in April, representing the lowest reading since June 2022 and marking the fifth consecutive monthly decline. Analysts had forecast a rise to 53.4.

Despite these unfavourable factors, the US dollar may receive some support from the easing of global trade tensions. The US and China have reached a provisional trade agreement that includes substantial tariff reductions. The United States will decrease its tariffs on Chinese goods from 145% to 30%, while China will reduce its tariffs from 125% to 10%.

Market sentiment is also supported by optimism over a possible US-Iran nuclear deal and upcoming talks between US President Donald Trump and Russian President Vladimir Putin aimed at de-escalating the conflict in Ukraine.

Meanwhile, the British pound (GBP) is gaining momentum, helped by stronger than expected UK GDP data released on Thursday. Both monthly and quarterly figures demonstrated robust economic growth, thereby reinforcing the likelihood that the Bank of England (BoE) may opt to maintain the current interest rate should inflation remain stable or exhibit further acceleration.

Trading recommendation: BUY 1.3315, SL 1.3250, TP 1.3400

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