**GBP/USD Forecast: Pound Slides as Risk Aversion and Firm US Data Weigh on Outlook**
*Original reporting by John Cameron, Exchange Rates UK*
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The British Pound to US Dollar (GBP/USD) exchange rate encountered renewed downward pressure in the trading week surrounding August 14, 2025, as a combination of heightened risk aversion and surprisingly firm US Producer Price Index (PPI) data dented appetite for the currency pair. This article analyzes the prevailing forces behind the GBP/USD decline, taking a deep dive into recent economic data, central bank perspectives, and market sentiment, along with forecasts and factors to monitor for the months to come.
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**Pound Struggles Amid Global Risk Aversion and USD Resurgence**
– The GBP/USD started the week under pressure, unable to establish firm support above the 1.27 handle.
– Persistent global growth worries and renewed volatility in equity markets contributed to a risk-off environment, bolstering demand for safe-haven assets like the US Dollar.
– Disappointing economic developments in China, ongoing concerns over global supply chains, and fragile European growth figures all helped to sour risk sentiment.
– The Pound, which tends to act as a pro-cyclical currency, proved particularly vulnerable to the general tilt toward risk aversion across global investors.
– The US Dollar Index (DXY), meanwhile, made strong gains as investors rotated into perceived safe-haven currencies.
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**US PPI Data Surprises on the Upside, Lifting the Dollar**
– Attention within foreign exchange markets turned to the latest US Producer Price Index figures, released midweek.
– US PPI for July came in at 2.4 percent year-on-year, beating consensus forecasts of 2.1 percent, and marking the highest annual reading in several months.
– The PPI excluding food and energy also exceeded expectations at 2.6 percent, reinforcing the notion of sticky underlying inflationary pressures in the US economy.
– Stronger producer prices point to continuing pipeline inflation, casting doubt on the notion that the Federal Reserve will be in any rush to ease monetary policy.
**Market Implications:**
– Currency traders interpreted the PPI surprise as hawkish, boosting Treasury yields and lending fresh strength to the US Dollar.
– Expectations for a near-term Fed interest rate cut receded, further curbing GBP/USD’s upward potential.
– The Dollar’s ascent was broad-based, not just limited to the Pound, with EUR/USD, AUD/USD, and other major pairs also sliding.
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**UK Economic Outlook: Growth Concerns Cloud the Horizon**
– UK GDP figures for Q2 were scheduled for release but early indications pointed to a stagnating British economy. Leading indicators suggested a soft patch with GDP growth expected to remain at or near zero.
– Surveys from the British Chambers of Commerce (BCC) and Confederation of British Industry (CBI) indicated weak activity in the dominant UK services sector.
– The Office for National Statistics revealed that wage growth remained high, but the uptick is increasingly viewed as a potential burden, pressuring businesses and raising concerns over economic resilience as costs climb.
– Retail sales volume numbers also disappointed, suggesting that high inflation and rising interest rates are weighing on consumption.
**Key UK Economic Data to Watch:**
– Industrial and manufacturing production prints
– Unemployment and wage growth data
– Consumer confidence surveys
– Retail sales and PMI releases
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**Bank of England Holds Fire, but Policy Remains Under Scrutiny**
– The Bank of England (BoE) had left its key interest rate on hold at 5.25 percent during its last policy meeting.
– Although some members voted for a rate increase, the majority favored patience, arguing that previous tightening is still working its way through the economy.
– BoE Governor Andrew Bailey delivered a cautious message, expressing concern about the balance between still-elevated inflation and increasingly soft economic activity.
– Market-implied pricing for interest
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