The pound rose on Thursday after fresh data showed the United Kingdom economy grew faster than expected in February, while a softer US dollar and easing geopolitical tensions added further support.
Pound firms on stronger uk data
Sterling was up about 0.14% around 1.3580 against the US dollar during the European session, helped by a stronger domestic backdrop and a weaker greenback.
Figures from the Office for National Statistics (ONS) showed UK gross domestic product expanded by 0.5% month-on-month in February, sharply above the 0.1% increase expected by economists. January’s reading was revised up to 0.1% from flat, pointing to a slightly firmer start to the year than initially reported.
The latest GDP figure marks a clear upside surprise versus consensus and signals a short-term improvement in growth momentum.
Mixed picture in industry and manufacturing
Industrial production rose 0.5% in February, beating the forecast of 0.2% and reversing a 0.1% decline in January. The gain in overall industry highlighted some resilience across the sector.
However, manufacturing output slipped 0.1% on the month. Analysts had expected a 0.3% rise after a 0.1% gain in January, underscoring that strength is not uniform across the economy.
The weaker manufacturing reading aligns with S&P Global’s March purchasing managers’ index, which showed UK manufacturing output falling for the first time in six months amid supply chain disruptions and higher energy costs.
Dollar index hovers near six-week low
The US Dollar Index traded near 98.00, after touching a six-week low of 97.83 earlier in the Asian session. The gauge, which tracks the dollar against six major currencies, was broadly flat on the day but remains down about 1.65% over the past month.
The recent slide reflects reduced demand for the dollar as a haven, as expectations grow for a diplomatic breakthrough between the United States and Iran.
Peace hopes weigh on safe-haven demand
Optimism over a more durable ceasefire between Washington and Tehran increased after comments suggesting progress toward ending hostilities. President Trump said in an interview that discussions were “very close to being over,” reinforcing expectations of de-escalation.
Indirect talks are under way to extend the current two-week ceasefire beyond its April 22 expiry, and the White House has signalled it feels “good about the prospects of a deal.”
These diplomatic efforts have helped to push energy prices lower, easing some inflation concerns and dampening expectations that the Federal Reserve will need to tighten policy further. As safe-haven demand fades, assets more sensitive to global risk sentiment have seen greater interest.
Implications for currency and risk sentiment
The combination of stronger-than-expected UK growth and a softening US dollar has created a supportive backdrop for sterling. The contrast between the UK’s recent data surprise and more cautious outlooks elsewhere has encouraged a shift toward currencies and assets seen as carrying higher risk.
For those holding dollar-denominated assets, a sustained peace agreement and lower geopolitical stress could further erode the appeal of positions primarily used as protection against turmoil.
Risks and outlook
Despite the upbeat GDP and industrial data, the UK’s outlook remains uneven. The International Monetary Fund recently cut its 2026 UK growth forecast to 0.8% from 1.3%, citing the economic impact of conflict in the Middle East and broader global headwinds.
The ONS publishes GDP data each month to track the total value of goods and services produced in the UK. February’s 0.5% gain versus a 0.1% consensus marks a notable short-term acceleration, but the weak manufacturing print and downgraded medium-term forecasts highlight that the recovery is still vulnerable to external shocks and domestic cost pressures.
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