**GBP/USD Seen Pressured Under 1.3550 as UK Economy Stagnates in July**
*Article adapted and expanded from original reporting by Capital Market, Business Standard.*
The pound sterling (GBP) recently struggled to maintain momentum against the US dollar (USD), as persistent concerns over the UK’s economic performance weighed on sentiment. The GBP/USD currency pair saw pressure mounting below the 1.3550 level during mid-September trading, coinciding with downbeat economic outputs and cautious commentary from the Bank of England (BoE). This article delves into the underlying economic trends, market expectations, technical analysis, and outlook for the GBP/USD pair.
## UK Economic Growth Stalls in July
The UK economy, according to the latest data released by the Office for National Statistics (ONS), showed lackluster activity in July 2023. Gross domestic product (GDP) was largely unchanged for the month, signifying a notable stagnation after a brief uptick in June. This weak growth performance signals potential headwinds amid a challenging macroeconomic backdrop.
### Key Points from the ONS GDP Release
– **Flat monthly GDP:** The UK economy registered zero monthly growth in July, failing to build on June’s modest 0.5% expansion.
– **Weak services sector:** The services sector, which composes approximately 80% of UK output, saw growth offset by declines in information, communication, and legal services.
– **Production and construction:** Manufacturing and industrial production posted marginal declines, while the construction sector reversed previous gains due to adverse weather and material shortages.
– **Broader implications:** Stagnation in output increases the risk of a recession in the latter months of the year, especially amid persistent inflation, higher interest rates, and global uncertainty.
These data points underscore growing concerns that the post-pandemic rebound is losing steam. Consumers face mounting cost-of-living pressures, and businesses are navigating a landscape defined by tighter financial conditions.
## GBP/USD Under Pressure: Market Reactions
Currency traders responded swiftly to the disappointing GDP release. The GBP/USD pair retreated below the 1.3550 level, erasing prior gains and highlighting the vulnerability of the pound in the current environment. Several factors are responsible for the sustained bearish tone in GBP/USD.
### Market Drivers Behind The Pound’s Weakness
– **Stagnant GDP growth:** The lack of expansion in July reinforced market skepticism about the durability of the UK recovery.
– **BoE caution:** Recent comments from Bank of England policymakers reflected a dovish tone, with officials signaling concerns over inflation persistence and a possible pause in rate increases.
– **Comparative USD strength:** The US dollar has gained favor as risk aversion increased globally, buoyed by robust US economic data and market expectations of continued Federal Reserve tightening.
– **Political and economic uncertainty:** Ongoing uncertainty around the UK’s fiscal policies, energy prices, and labor market conditions has contributed to a flight from sterling assets.
Together, these factors kept the GBP/USD pair trapped below key resistance levels, with traders positioning for potential further weakness.
## Ongoing Inflationary Pressures
A central theme affecting the pound’s trajectory has been the unrelenting pace of inflation. UK headline inflation remains well above the Bank of England’s target of 2%, driven by strong wage pressures, high energy prices, and persistent supply chain disruptions. Core inflation, which strips out volatile components such as food and energy, also remains stubbornly high.
### How Inflation is Impacting the UK Economy and Sterling
– **Rising household costs:** Elevated prices for essentials have squeezed real household incomes, curtailing consumer spending.
– **Business activity:** Firms face higher input costs, leading some to pass these increases onto consumers, while others cut back on investment or scale down operations.
– **BoE monetary policy:** The central bank has responded with a series of interest rate hikes since late 2021, but policymakers now express apprehension about overtightening as economic growth fal
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