**GBP/USD Weekly Forecast: Sterling Retreats as Bank of England Cut Looms**
*By Yohay Elam, originally published on ForexCrunch.com*
The British pound (GBP) finds itself on uncertain ground as it struggles to maintain upward momentum against the US dollar (USD). In the week leading into August 2025, GBP/USD has weakened while investors turn their attention to monetary policy decisions from both sides of the Atlantic.
The primary driver behind sterling’s decline is the rising anticipation of a near-term interest rate cut by the Bank of England (BoE). Economic indicators in the UK continue to reflect mixed signals, with weak growth forecasts and gradually declining inflation raising the likelihood of policy easing by the BoE. Meanwhile, the US economy remains relatively resilient, giving the Federal Reserve more latitude to maintain higher interest rates for an extended period.
This week’s developments deepen the divergence in monetary policy outlooks between the BoE and the Federal Reserve, further weighing on GBP/USD.
## GBP/USD: Weekly Performance Summary
GBP/USD posted a modest decline over the past week, slipping from 1.2840 to close around 1.2765. While the move wasn’t sharp, the underlying tone was defensive. Broad dollar strength and weak UK economic sentiment combined to put sterling under pressure.
– Opening price: 1.2840
– Weekly low: 1.2750
– Weekly high: 1.2862
– Closing price: 1.2765
– Change on the week: -0.6 percent
Sterling’s weakness stands out when compared with previous weeks, where it benefited slightly from mild optimism around peaking US inflation and a softening dollar. That narrative has been interrupted following some stronger-than-expected US macro data and clearer dovish noise from the BoE.
## Market Sentiment and Key Drivers
### 1. Rising Rate Cut Expectations from the Bank of England
Speculation is mounting that the BoE may begin reducing its benchmark interest rate as soon as the September or November meeting.
Several factors are contributing to this outlook:
– UK headline inflation is falling closer to the BoE’s 2 percent target. The latest Consumer Price Index (CPI) for June showed price growth of 2.1 percent year-over-year, a sharp drop from the 3.2 percent rate in April.
– Core inflation, however, remains sticky at 3.4 percent, suggesting price pressures are easing slowly.
– Economic growth remains sluggish. GDP expanded by just 0.2 percent in Q2 2025, with consumer spending staying weak amid high household debt and slowing wage growth.
– Employment data is also showing signs of weakening. June’s unemployment rate rose to 4.5 percent from 4.3 percent in May, while job vacancies fell for the fourth consecutive month.
The Bank of England is due to meet next week, and markets are pricing about a 45 percent probability of a 25 basis point rate cut.
On July 31, BoE Governor Andrew Bailey signaled that the Bank may be nearing a “pivot point,” revealing concerns about economic stagnation, though noting that inflation risks remain.
### 2. Strength in the US Dollar
The US dollar has continued to outperform most of its peers, supported by:
– Stronger-than-expected US GDP data: Q2 growth came in at 2.3 percent versus 2.0 percent forecast.
– Labor market resilience: Nonfarm payrolls in June added 240,000 jobs, surprising to the upside.
– Sticky US inflation: Despite easing headline inflation, core inflation remains above 3 percent, making the Fed’s job far from finished.
As a result, Fed Chair Jerome Powell struck a neutral yet assertive tone in his July 30 comments, stating that rate cuts may not be warranted until mid-2026 if inflation remains elevated. The Fed kept interest rates unchanged at 5.25–5.50 percent in their last policy
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