Despite retreating from its recent one-week peak above $1.25 yesterday, GBP/USD remains poised to record its most substantial weekly advance in seven weeks. A more balanced tone from Bank of England (BoE) policymakers this week, alongside a string of robust UK economic indicators, notably consumer confidence this morning, have bolstered the pound across the spectrum.

The GfK consumer confidence gauge in the UK surpassed expectations, climbing to -19 in April from -21 in March. Over the past half-year, the composite index has fluctuated between -24 and -19, reflecting sluggish progress amid economic uncertainties. Despite the recent uptick in the UK's unemployment rate to a six-month high, inflation has retreated from nearly 9% to around 3% over the past year, resulting in the UK Misery Index (unemployment + inflation) plummeting to its lowest level since 2021. Given the strong correlation between consumer confidence and the Misery Index, we anticipate a further boost in morale, particularly once the BoE initiates interest rate cuts.

Markets are currently pricing in a mere 40 basis points of rate cuts by the BoE this year, with the initial adjustment anticipated in August. However, we wouldn't be taken aback by a reduction as early as June, possibly totalling 75 basis points for the year, which could cap any GBP appreciation due to unfavorable yield differentials. Nonetheless, absent any intervention from Japanese authorities, GBP/JPY could extend its ascent to new highs not seen since 2015. Following unexpectedly low Japanese inflation figures, the Bank of Japan opted to keep rates unchanged this morning, exerting pressure on the yen across the board.