**GBP/USD Weekly Forecast: On the Back Foot as BOE Cut Nears**
*Original author: Yohay Elam, Forex Crunch*
The British pound has faced renewed selling pressure against the U.S. dollar, bringing the GBP/USD pair closer to key support levels amid mounting expectations of a dovish turn from the Bank of England (BOE). As investors recalibrate their bets for interest rate cuts, it is crucial to analyze the factors shaping the pound’s trajectory, evaluate recent economic data, and map out technical levels that could define the pair’s direction in the coming weeks.
## Market Overview
GBP/USD experienced a steady decline over the past week as the market narrative shifted towards the likelihood of an imminent rate cut from the BOE. Recent communications from central bank officials, along with weakening UK economic indicators, have made a compelling case for easing.
Concurrently, the U.S. dollar has held its ground, supported by robust economic performance and cautious signaling from the Federal Reserve. This divergence has intensified the downward pressure on the pair, with traders seeking clarity on how soon the BOE may act.
## UK Economic Backdrop
Several UK data releases have disappointed investors, adding to the argument for a rate cut. Below, we detail the major data points influencing sentiment:
– **Growth stalling:** Latest GDP figures indicate stagnation, with quarterly growth coming in flat. This stagnation raises questions about the resilience of the UK economy and implies a limited capacity for consumers and businesses to weather tighter financial conditions.
– **Inflation softening:** Headline inflation has slowed to 2 percent, finally aligning with the BOE’s official target for the first time in years. Importantly, measures of core inflation and services inflation have also eased, suggesting that underlying pressures are receding.
– **Labor market deterioration:** Unemployment has edged up to 4.4 percent, with job vacancies declining. This weakening in labor market conditions points to slowing wage growth, further mitigating inflation risks.
– **Retail sales underwhelming:** Consumer spending remains lackluster, reflecting subdued sentiment and the ongoing effects of high living costs.
While energy prices and food costs have contributed to the disinflationary trend, the broader message is that the price pressure which once restrained BOE from loosening policy is now abating rapidly.
## Bank of England’s Policy Outlook
After keeping rates at a 16-year high of 5.25 percent for an extended period, the BOE is clearly signaling a readiness to respond to changing macroeconomic conditions. Governor Andrew Bailey and other Monetary Policy Committee (MPC) members have indicated that the time for easing is drawing closer, albeit with some caution about acting prematurely.
Key considerations shaping the BOE’s outlook:
– **Data dependence:** Bank officials stress that decisions will be driven by incoming economic data, with particular attention to services inflation and wages.
– **Risks of waiting:** There is an acknowledgment that overly tight monetary policy could further harm growth, especially as other central banks move towards easing.
– **Sequencing and magnitude:** Markets are pricing a first cut as early as August, with around two 25-basis-point cuts anticipated by year-end. However, dovish expectations could be tempered if wage growth or services inflation remains sticky in upcoming releases.
The BOE thus finds itself in a delicate balancing act: supporting a struggling economy while guarding against a resurgence in inflation.
## U.S. Dollar Fundamentals
The dollar has proven resilient amid the uncertainty surrounding global monetary policy normalization. Several factors bolster the greenback’s appeal:
– **Strong U.S. data:** The American economy continues to display resilience, with healthy job creation, resilient consumer demand, and robust service sector activity.
– **Federal Reserve caution:** Despite signs of receding price pressures, the Fed has refrained from offering clear rate-cut timing. This patience stands in contrast to the BOE, as policymakers prioritize sustained progress on core inflation before easing.
– **Safe-haven flows:** Geop
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