Sterling and euro edge lower

GBP/USD traded 0.20 per cent lower at 1.3390, while EUR/USD slid 0.14 per cent to 1.1562

Sterling and the euro edged lower on Friday, with the pound underperforming after new data showed the UK economy contracted in April, reinforcing concerns that growth momentum is weakening as geopolitical uncertainty and elevated energy prices continue to weigh on sentiment.

As of 12:30 GMT, GBP/USD traded 0.20 per cent lower at 1.3390, while EUR/USD slid 0.14 per cent to 1.1562.

The UK economy shrank by 0.1 per cent month-on-month in April, matching market expectations and reversing part of the strong growth recorded earlier in the year. The contraction followed gains of 0.3 per cent in March and 0.4 per cent in February, suggesting the economy entered the second quarter on a softer footing after a robust first-quarter performance.

The weaker GDP reading is likely to heighten concerns that economic activity could contract over the April-June period, complicating the government’s efforts to sustain growth amid rising energy costs and ongoing geopolitical tensions.

For sterling, the data reinforces expectations that the Bank of England will remain cautious, limiting the pound’s ability to benefit from any broader improvement in risk appetite.

The euro also struggled to gain traction despite this week’s hawkish ECB meeting. Markets have already priced a significant portion of the expected tightening cycle, leaving EUR/USD unable to sustain a move above the 1.1600 level. Investors continue to view the U.S. central bank as an important driver of currency markets, particularly with inflation risks remaining elevated.

The dollar remained broadly supported despite improving risk sentiment, as investors continued to price a cautious U.S. central bank outlook ahead of next week’s policy meeting.