Title: GBP/USD Forecast: Pound Softens as UK Construction Data and US Dollar Strength Weigh
Original Source: Mitrade, Article by Baruch Silvermann
The British Pound faced downward pressure against the US Dollar in early September 2025 as a combination of weak UK economic data and broader US Dollar strength weighed on investor sentiment. The GBP/USD pair has been under significant scrutiny from traders, with fluctuations driven primarily by macroeconomic data releases, central bank expectations, and global risk sentiment.
Key Developments Affecting GBP/USD
– UK S&P Global Construction PMI Falls Below Expectations
– US Dollar Gains Broad Support Amid Hawkish Fed Stance
– Yields and Risk Sentiment Influence Pound’s Performance
– Technical Outlook Points to Bearish Momentum in GBP/USD
Decline in UK Construction PMI Dampens Pound Sentiment
The UK’s latest S&P Global/CIPS Construction Purchasing Managers’ Index (PMI) came in at 50.8 in August, missing analysts’ expectations of 51.5. Though the index remained slightly above the neutral 50 threshold, signaling marginal expansion in the sector, the lower-than-expected reading pointed to slowing momentum.
Subcomponents of the UK PMI report revealed deeper issues:
– Commercial activity growth slowed from previous months
– Civil engineering remained subdued
– Residential construction showed only modest recovery after long periods of contraction
This construction data followed earlier surveys that showed softness in the UK services and manufacturing sectors. Collectively, these readings suggested that the overall economy may be stalling, potentially undermining the Bank of England’s ability to tighten monetary policy further.
Bank of England Policy Cautious Amid Fragile Data
The BOE faces a delicate balancing act. Previous rate hikes have helped curb inflation, but economic growth appears to be faltering. With inflation still above the 2 percent target and wage growth remaining strong, policymakers remain cautious. However, softening growth indicators, such as the recent construction PMI, reduce the scope for additional interest rate increases.
Investors now expect the Bank to keep rates on hold in upcoming meetings. According to current market pricing:
– A further rate hike by the BOE appears unlikely in 2025 unless wage growth accelerates again
– Traders see potential rate cuts in mid to late 2026 if economic slowdown deepens
– The BOE is likely to prioritize maintaining stability over aggressive tightening
Fed Policy and US Dollar Strength Add to Sterling Pressure
While UK economic data has weakened, the US economy has shown greater resilience. Recent data releases in the US have strengthened the case for the Federal Reserve to maintain its hawkish stance. Key factors supporting the US Dollar include:
– Elevated US Treasury yields, particularly in shorter-dated maturities
– Strong labor market data, with unemployment near historical lows
– Sticky inflation and robust consumer demand
– Fed policymakers signaling concern about premature policy loosening
Recent comments from Federal Reserve officials have reinforced the commitment to a higher-for-longer interest rate regime. This has boosted demand for the Dollar across major currency pairs, putting additional pressure on GBP/USD.
Safe haven flows during periods of global uncertainty have also added to Dollar strength. Investors have shown preference for Dollar-denominated assets amid rising geopolitical tensions and renewed equity volatility.
Market Reactions and Trader Sentiment
Following the release of the UK’s construction PMI, cable dropped around 0.3 percent on the day to trade close to 1.2550. The market reaction was driven not only by the economic data but also by broader expectations of divergent central bank policies between the US and UK.
Currency traders have adopted a more bearish stance on the Pound amid:
– Diminished chance of further BOE rate hikes
– Flight to safety favoring the US Dollar
– Technical weakness in GBP/USD charts (see further details below)
According to commitment of traders (COT) data, large speculators have scaled back long positions in the Pound, reflecting growing skepticism about the UK’s economic prospects.
Potential Risks to GBP Forecast
Explore this further here: USD/JPY trading.