**GBP/USD Collapses as Tariff Pressure, UK Recession Risk, and CPI Forecast Weigh Heavily**
*By TradingNews.com Staff Writer*
The British pound has come under intense selling pressure against the US dollar in recent trading sessions, marking a significant breakdown in the GBP/USD currency pair. This latest collapse in the pair’s value is being attributed to a complex array of developments impacting the United Kingdom, including the looming threat of trade tariffs, mounting recession risks, and murky prospects for UK inflation. Here’s a detailed analysis of the current GBP/USD dynamics, the underlying economic factors at play, and the potential market implications moving forward.
**1. GBP/USD Chart Breaks Support as Sellers Dominate**
GBP/USD has been trending sharply lower, breaching crucial support levels that had previously kept the pair afloat. Since the start of June, the pound has lost over 3% of its value versus the US dollar, reflecting eroding investor confidence in the British economy.
Key technical factors include:
– The pair broke below 1.2500, a psychologically significant level.
– The 200-day moving average, a long-term trend indicator, was decisively breached.
– The Relative Strength Index (RSI) points to strong bearish momentum.
– Downside volume has increased, confirming an aggressive move by sellers.
**2. Tariff Pressures Raise Alarm Bells for UK Exporters**
A major contributor to sterling’s decline is the specter of trade tariffs being imposed by some of the UK’s key trading partners. Recent developments between the UK and the European Union have once again brought the possibility of punitive tariffs into the spotlight.
Several factors fuel this concern:
– Ongoing disputes over the Northern Ireland Protocol post-Brexit.
– The EU’s indication that it may reintroduce tariffs on select British goods if the UK fails to adhere to agreed-upon trade arrangements.
– Signs that the US is considering tariffs in retaliation for UK digital services taxes impacting American tech companies.
The implications for UK businesses are significant:
– Exporters could face reduced access to European markets.
– The auto industry and agricultural sectors are particularly vulnerable.
– Investment sentiment in the UK’s manufacturing sector has suffered.
**3. Escalating UK Recession Risk Deepens Pound Weakness**
The UK economy is currently teetering on the brink of recession, an outcome that would almost certainly place further pressure on the pound. Several recent data points highlight the magnitude of these challenges:
– UK GDP growth flatlined in the latest quarterly reading.
– Consumer confidence remains near decade lows, with households pulling back on discretionary spending.
– Mortgage rates have surged to their highest levels since 2008, weighing heavily on the housing market.
– Business investment has stagnated amid political uncertainty and rising cost pressures.
Markets now see a rising probability of a UK recession in the second half of the year. Economists note that:
– The Bank of England is caught between fighting persistent inflation and stimulating a weakening economy.
– Inflation-adjusted wage growth is negative, eroding consumer purchasing power.
– Public sector strikes and lost workdays continue to disrupt productivity.
**4. UK CPI Forecast Adds Fuel to Sell-Off**
Recent inflation data has heightened fears that the UK economy is stuck with higher prices for longer. As investors await the next Consumer Price Index (CPI) release, markets are bracing for the possibility that UK inflation could remain stubbornly elevated even as growth falters.
Key points from economists and market analysts:
– The latest CPI reading showed inflation at 6.2%—well above the Bank of England’s 2% target.
– Core inflation (excluding volatile food and energy prices) is also running hot.
– Rents and core services prices show little sign of abating.
Possible outcomes and market impacts:
– If inflation overshoots forecasts, the Bank of England may be forced to keep interest rates higher for longer, risking deeper economic pain.
– The pound could remain under selling pressure
Read more on GBP/USD trading.