**British Pound to Dollar Forecast: GBP/USD Slips to 1.31 on Weak UK GDP**
*Original reporting by Bradley Gibbs, CurrencyNews.co.uk*
The British Pound Sterling (GBP) faced downward pressure against the US Dollar (USD) this week, as disappointing UK GDP figures weighed on market sentiment. Following a sustained period of resilience, the GBP/USD exchange rate has retreated to trade around the 1.31 mark. This article, originating from Bradley Gibbs’ analysis for CurrencyNews.co.uk, reviews the latest developments driving the currency pair, explores the broader economic context, and provides a comprehensive outlook for traders and investors.
## GBP/USD Exchange Rate Review
The GBP/USD pair experienced notable declines following the latest UK GDP release. This decline comes amid broader economic concerns and shifting expectations for monetary policy on both sides of the Atlantic.
– The pair slipped from recent peaks, with selling pressure intensifying after the GDP announcement.
– At its recent low, the exchange rate hovered around 1.3070 before stabilizing near the 1.31 level.
– Compared to previous weeks, the Pound has now surrendered most of its post-summer gains versus the Dollar.
## Weak UK GDP Data: The Key Catalyst
The primary driver behind the Pound’s weakness was the latest set of UK Gross Domestic Product (GDP) figures, which rattled investor confidence.
– Data released showed that UK GDP contracted 0.1 percent in the latest reporting period, surprising analysts who had expected broadly flat or marginally positive growth.
– A breakdown revealed that key contributors to the contraction included weakness in manufacturing and stagnancy in the services sector.
– Some resilience was observed in construction output, but this was insufficient to offset the broader economic malaise.
### Reaction from Financial Markets
The GDP report spurred a swift reaction across UK financial assets:
– Sterling immediately came under pressure, with major currency pairs reacting accordingly.
– UK government bond yields declined as markets priced in a more dovish outlook for the Bank of England.
– The FTSE 100 initially slipped but later regained composure as investors shifted focus to defensive stocks less exposed to the UK domestic economy.
## Broader Economic Context
The UK’s growth struggles are not occurring in isolation. Several complicating factors are contributing to the subdued outlook:
– **Ongoing cost-of-living crisis:** High inflation continues to erode real incomes, curbing household consumption and broader economic activity.
– **Rising borrowing costs:** The Bank of England’s efforts to control inflation through higher interest rates have led to increased mortgage and loan payments, further weighing on disposable incomes.
– **Global demand slowdown:** The UK, as a trade-heavy economy, is being affected by weakening global trade flows and slower economic growth in key partners, including the European Union and China.
Overlaid onto these elements are lingering Brexit-related adjustments and political uncertainty, both of which amplify risk aversion toward UK assets.
## Monetary Policy Outlook: UK vs. US
The monetary policy stances of the Bank of England (BoE) and the Federal Reserve (Fed) play a crucial role in determining the GBP/USD exchange rate’s trajectory.
### Bank of England
– Following a rapid pace of rate hikes to combat stubborn inflation, the BoE has recently shifted to a more cautious tone.
– Policymakers have signaled that further tightening will depend on incoming data, and this week’s disappointing GDP print will likely tilt the MPC (Monetary Policy Committee) toward a more dovish stance.
– Markets are now pricing in an extended pause, with speculation growing that the BoE may even consider rate cuts in 2025 if growth continues to falter.
### Federal Reserve
– The Fed, meanwhile, has maintained a more hawkish posture, reiterating its commitment to ensuring that inflation is tamed before contemplating policy easing.
– Solid US payroll and inflation data have kept the door open to additional rate hikes.
– As a result, the policy divergence between the BoE and
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