- US economy contracts 0.3% in Q1, falling short of projections and fueling stagflation worries.
- Inflation intensifies, with Q1 price index registering 3.7% and Core PCE reaching 2.6% in March.
- ADP employment figures underperform; market participants pivot attention to Non-Farm Payrolls and ISM Manufacturing PMI.
The British Pound weakened against the US dollar following the release of data indicating a contraction in the United States economy, as evidenced by the first quarter Gross Domestic Product (GDP) figures for 2025. Currently, the GBP/USD exchange rate is trading at 1.3331, reflecting a decrease of 0.51%. This movement underscores the market’s reaction to the unexpected economic slowdown and its potential implications for monetary policy.
GBP/USD declines 0.51% to 1.3331 as sluggish US growth and persistent inflationary pressures bolster demand for the US Dollar
Data released by the US Commerce Department revealed that the nation’s GDP experienced a contraction of -0.3% in the first quarter of 2025. This represents a significant downturn from the 2.4% growth recorded in the final quarter of 2024 and falls short of the anticipated consensus estimate of a 0.3% expansion. Concurrently, the price index for the same period exhibited a substantial increase of 3.7%, signaling a potential resurgence of inflationary pressures within the economy. This combination of contracting growth and rising prices has reignited concerns about stagflation, a challenging economic scenario characterized by slow growth and high inflation.
Recent data from the US Bureau of Economic Analysis (BEA) indicated that the Federal Reserve’s preferred inflation metric, the Core Personal Consumption Expenditures (PCE) Price Index, rose by 2.6% in March. This figure aligns with economists’ expectations and represents a decrease from the 3% recorded in February. While the slight moderation in Core PCE offers some reassurance, the overall inflation picture remains a concern for policymakers. The Federal Reserve is closely monitoring these economic indicators as it evaluates the appropriate course for monetary policy, balancing the need to control inflation with the desire to support economic growth. Future interest rate decisions will likely hinge on the trajectory of both inflation and GDP growth in the coming months. Market analysts suggest that further economic weakness could prompt the Fed to reconsider its hawkish stance, potentially leading to a more dovish approach to monetary policy.
